A Russian ruble coin with a U.S. dollar bill and a quarter dollar coin in Moscow, on Oct. 10, 2023.
Alexander Nemenov | AFP | Getty Images
In the midst of a long-drawn war, declining oil prices, stiff sanctions, and an economy that’s on the downhill, Russia’s ruble has been rising.
In fact, it is the world’s best-performing currency so far this year, according to Bank of America, with gains of over 40%. The ruble’s stunning rally in 2025 marks a sharp reversal from the past two years when the currency had depreciated dramatically.
What’s powering the Russian currency?
The strength in the ruble has less to do with a sudden jump in foreign investors’ confidence than with capital controls and policy tightening, market watchers told CNBC. The weakness in the dollar comes as an added bonus.
Brendan McKenna, international economist and foreign exchange strategist at Wells Fargo, lists three reasons for the ruble’s rally. “The central bank has opted to keep rates relatively elevated, capital controls and other FX restrictions have tightened a bit, and [there’s been] some progress or attempt at progress in finding a peace between Russia and Ukraine.”
Russia’s central bank has maintained a restrictive stance to curtail high inflation, keeping domestic interest rates high at 20% and tightening credit. The steep borrowing costs are deterring local businesses from importing goods, in turn reducing demand for foreign currency among Russian businesses and consumers, said industry watchers.
There’s been a decline in foreign currency demand from local importers, given weak consumption, said Andrei Melaschenko, an economist at Renaissance Capital. That decline has given the ruble a boost as banks don’t need to sell rubles to buy the dollar or yuan.
In the first quarter of 2025, there was an “overstocking” in consumer electronics, cars and trucks which were actively imported in the second half of last year in anticipation of the increase in import duties, said the Moscow-based economist. The consumer activity cooldown was primarily in the durable goods sector, which made up a sizable portion of Russia’s imports, Melaschenko said.
Further, Russian exporters need to convert dollar payment into rubles, thereby increasing the currency’s demand. Importers, on the other hand, have cut back on purchasing foreign goods, and so do not need to sell rubles to pay in dollars.
The Russian government requires large exporters to bring a portion of their foreign earnings back into the country and exchange them for rubles on the local market. In particular, the oil industry has been converting foreign earnings back into rubles, analysts said.
Between January and April, the sales of foreign currencies by the largest exporters in Russia totaled $42.5 billion, data from CBR showed. This is almost a 6% jump compared to the four months before January.
CBR shrinking money supply is also supporting ruble, said Steve Hanke, professor of applied economics at Johns Hopkins University.
In August 2023, the rate of growth in the money created by the CBR was soaring at 23.9% per year, he said. This figure has turned negative since January — currently contracting at a rate of -1.19% per year, said Hanke.
Further, hopes for a peace deal between Ukraine and Russia following the election of U.S. President Donald Trump had also sparked some optimism, said Wells Fargo’s McKenna. Expectations of Russia’s reintegration into the economy had prompted some capital flows back into ruble-denominated assets, in spite of the capital controls, which have supported the currency’s strength to some extent.
Is the rally sustainable?
Despite the ruble’s current strength, analysts caution that it may not be sustainable. Oil prices—a major pillar of Russia’s export economy — have fallen significantly this year, which could weigh on FX inflows.
“We believe that the ruble is close to its maximum and may begin to weaken in the near future,” Melaschenko said. “Oil prices have fallen significantly, which should be reflected in a decrease in export revenue and the sale of its foreign currency component,” he added.
While peace talks between Russia and Ukraine recently have not wielded any concrete developments, McKenna also noted that a concrete peace deal could erode ruble’s strength as the controls such as the FX restrictions that have supported the currency might be lifted.
“Ruble can selloff pretty rapidly going forward, especially if a peace or ceasefire is reached,” he said.
“In that scenario, capital controls probably get fully lifted and the central bank might cut rates rather quickly,” he added.
Economic trade-offs
Exporters are also seeing slimmer margins, industry analysts noted, in particular the country’s oil sector against the backdrop of declining global oil prices. The government, too, is feeling the squeeze — lower oil prices combined with a stronger ruble are eroding oil and gas revenues.
The government’s finances are highly sensitive to fluctuations in crude prices, with oil and gas earnings making up around 30% of federal revenues in 2024, according Heli Simola, senior economist at the Bank of Finland.
“The Ministry of Finance has been forced to lean more heavily on the National Welfare Fund to cover spending,” Melaschenko said. “And there may be further cuts to non-priority expenditures if this trend continues.”
That said, aside from the oil trade, Russia has been mostly isolated from the global marketplace. “Meaning, a weaker RUB does not add much to Russia’s trade competitiveness,” said McKenna.