Ruble Bends to Putin’s Will in Nod to Wartime Election Economics

(Bloomberg) — A rally in the ruble that’s propelling it toward the strongest since July is the latest piece of Russia’s economic jigsaw to fall into place before a widely expected tilt by Vladimir Putin at another presidential term in March elections.

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The currency’s reversal of fortunes since early October has brought it to around 90 per dollar, a level near to the average for next year forecast by the Economy Ministry. The recent appreciation was among the key factors that acted as a check on inflation, according to Bloomberg Economics, which now expects a slowdown after price growth likely peaked in September.

The exchange rate has increasingly emerged as a barometer of the economy’s health amid sweeping international sanctions as Russia closes in on two years of its war against Ukraine. It’s also a critical variable for a budget that will allocate more on the military next year than toward any other single item.

Dragged down by plummeting export proceeds and heavy government spending, the ruble in October briefly hurtled past the psychologically important level of 100 per dollar. The depreciation has spurred the central bank to double official borrowing costs so far this year to 15%, including an emergency interest-rate hike in August.

But setbacks didn’t stop until the government clawed back more dollars by restoring some capital controls on major exporters. It was a decision made because Russia needed “the ruble a little stronger,” Putin said last month.

Buoyed by the stiffer restrictions, alongside rate hikes and crude around $80 a barrel, the ruble is the world’s best performer against the dollar since early October. It’s gained over 4% so far this month versus the US currency.

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The challenge now is to find a sweet spot for the ruble’s value that holds off inflationary pressures without cutting into government revenues.

Under the Economy Ministry’s latest outlook that’s used to calculate the…