Stock, Currency, Consumer Markets: Repeating the Lessons of the 1990s?

On Russia Day, June 12, the US marked the occasion with a special “greeting” – announcing a new package of sanctions. Over 500 individuals and entities associated with Russia were affected. Most notably, the sanctions targeted the Moscow Stock Exchange, which from June 13 ceased trading in dollars and euros. Will the ruble now rollercoaster on the “American mountains”? That’s one of the questions…

The new US move has been dubbed an “economic bomb” by the press; however, a significant number of experts (primarily Russian) do not predict any tragic consequences for Russia. Still, analysts are reluctant to share good news.

The first obvious and immediate consequence of the sanctions is a sharp drop in quotes across the entire Russian stock market. The ruble and dollar indices of the Moscow Stock Exchange fell nearly 16%, with stocks of banks and companies also taking a hit: Sberbank lost 4.3%, VTB – 4.7%, LUKOIL – 5.03%, Gazprom – 4.65%. This isn’t yet a stock market crash, but the shock is quite noticeable.

The main impact of the sanctions was directed at the currency market—trading in dollars and euros, as well as all related settlements. The Russian Central Bank stated that it would determine the exchange rate using over-the-counter methods. Previously, the Moscow Stock Exchange acted as a guarantor of transactions (conducted according to certain rules), but now trading in dollars and euros will be conducted in the interbank market as in the 1990s—participants will determine a mutually agreeable rate “privately.” At the same time, the mechanism for forming the official Central Bank of Russia rate will become less transparent.

The common conclusion among many experts: the ruble’s exchange rate will become more volatile and unpredictable. Against this backdrop, the Ministry of Economic Development’s forecasts of the ruble falling to 98 rubles per dollar by the end of the year (a 9% drop) and over 100 rubles in 2025 no longer seem gloomy.

The consumer sector is another potential victim of sanctions. A rise in prices for imported goods is almost inevitable, as currency transactions will take longer and become more complicated, leading to a reduction in imports and exports. Any reduction in imports, in turn, will lead to price increases. Given that a significant portion of Russian goods are actually produced from imported components or on imported equipment, Russian products will also become more expensive. Importers will incorporate higher currency fluctuation risks into their prices.

A further activation of import substitution within the “union state” is a predictable response to these challenges. But this policy is unlikely to fundamentally change the situation on the consumer market. Unless it worsens it.

As for the Belarusian market, it is not directly affected by these sanctions—they are not aimed against Minsk. But since the Belarusian economy is significantly tied to trade in Russian rubles, the trend of fluctuations in the Russian ruble will inevitably affect the Belarusian ruble/US dollar and Belarusian ruble/euro pairs. However, as economists note, fluctuations for the Belarusian ruble will be smoother—no storm is expected on the Belarusian currency market yet. But clear skies are also not anticipated…

Since the beginning of the war in Ukraine, in less than 28 months, the Russian ruble has depreciated by 9% against the dollar, and the Belarusian ruble by 8% (data from the OANDA converter; without details of the maximum currency fluctuations). Now, theoretically, the national currencies of Belarus and Russia could achieve similar devaluation values in just half a year.

By the same logic (of the Belarusian economy’s connection to the Russian one), a gradual increase in prices for consumer goods in Belarus is likely.