After a historic collapse following the Russian military offensive in Ukraine, the ruble has rebounded spectacularly, supported by tight capital controls and energy exports.

But analysts say the success is in many ways contrived and does not bode well for the health of the Russian economy.

The February 24 military operation triggered unprecedented Western sanctions against Moscow, sending the ruble into freefall and accelerating already high inflation.

Four days after President Vladimir Putin sent troops to the pro-Western country, the central bank more than doubled its key rate to 20% to support the financial system.

In a surprise move on Friday, the central bank cut the rate to 17%, saying financial stability risks had “stopped rising” for now.

“It is clear that the Central Bank of Russia believes that the Russian economy is now emerging from the most acute phase of its crisis and that such restrictive monetary conditions are no longer justified,” said Liam Peach, emerging Europe economist at Capital. Economics.

The ruble’s return to levels last seen before the start of Moscow’s military campaign is a sign that the economy may be adjusting to sanctions, economists say.

“Exports are strong”

Sofya Donets, chief economist at Renaissance Capital, said the ruble’s rally was helped by an unprecedented trade surplus.

“There has been a drop in imports, partly because of the sanctions, partly because of the uncertainty and the logistical disruptions,” she told AFP.

“But exports are strong, and with high commodity prices, we expect a historically high surplus of $20-25 billion in March.”

Oil and gas, Russia’s main export products, continue to flow abroad, filling Russia’s coffers.

The United States has banned Russian oil imports and the EU has passed a ban on Russian steel imports, but these sanctions have largely spared major Russian exports.

“It’s only about 5% of Russian exports, so it’s not that much,” Donets said.

Robust exports were complemented by tight capital controls introduced by the central bank.

The West froze some $300 billion of Russia’s foreign currency reserves abroad, a move Foreign Minister Sergey Lavrov called a “theft”.

To counter the sanctions, exporting companies were forced to sell 80% of their export earnings to buy rubles.

Russians were also banned from withdrawing more than $10,000 in foreign currency or taking more than that amount out of the country, and foreign investors were banned from selling Russian assets.

“No precedent”

However, the rapid recovery of the ruble is not synonymous with a strong economy, according to analysts.

“Russian equities and the ruble currently remain decoupled from global macroeconomic factors and news flow due to capital controls,” Alfa Bank said in a note,

He estimates that the ruble will trade at around 80-85 to the dollar in the near future.

Economists say the worst economic impact of the sanctions is yet to come and expect Russia, which has relied heavily on imports of manufacturing equipment and consumer goods, to plunge into a deep recession.

Russia’s inflation rate hit 16.7% year-on-year in March, the national statistics agency said on Friday, a level not seen since 2015, as food prices rose even more sharply.

Capital Economics pointed to the 7.6% month-on-month rise in consumer prices in Russia in March as “the largest monthly increase since the 1990s”.

Renaissance Capital analysts expect annual inflation to peak at 24% this summer.

Donets said “the market is destroyed in a sense.”

“We now have a closed financial system,” she added.

“Where would the ruble rate be if there were no capital controls? It’s very difficult to say, there was no precedent.”