Since the mid-1990s, the Russian rouble has suffered two major shocks from which the currency has never fully recovered: the Asia crisis in the late-90s and then the global financial crisis in 2008.
The fate of the rouble after the latest hit — the ongoing Ukraine crisis — should not prove any different.
The chart below from Bank of America Merrill Lynch shows why Russia probably won’t be able to unwind the rouble’s recent collapse in the foreseeable future. (The line is going up to indicate the increasing number of roubles needed to buy one US dollar.)
The graph shows that each time the currency has taken a knock, it holds onto those losses against other currencies. It’s interesting how asymmetric the shifts have been, given that the rouble is often described as a petro-currency, or a currency that is inextricably tied to the price of oil.
Take, for example, the period from 1998 to 2008. During this decade, the Russian economy was growing at an average rate of 7% annually. Over this period, the oil price was hugely supportive with WTI crude rising from under $US25 a barrel in 1998 to over $US140 a barrel:
But the rouble saw only marginal gains over this period, falling from a low of around 32 roubles to the dollar in 2004 to a peak of 24 roubles to the dollar in August 2008. However, those gains were more than wiped out within six months as the oil price came crashing back to $US30 dollars a barrel.
Despite the oil price rebounding strongly from its 2008 lows, the rouble once again failed to track its gains remaining stuck within a range of 30-35 roubles to a dollar.
Now oil is crashing again — and the rouble’s following it down:
The lesson from history appears to be that even if oil prices reverse their current trend, those expecting the rouble to bounce back from current levels may be in for a big disappointment.
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