The Central Bank of the Russian Federation has reported a decline in foreign currency inflows

According to the published preliminary balance of payments assessment, the volume of currency inflows into Russia continues to decrease, which explains the issues with the ruble's exchange rate.

Currently, the main source of currency remains exports, which are showing a decline: $39.1 billion in September, $36.6 billion in October, and $32.2 billion in November. In contrast, imports remain relatively stable: $26.8 billion, $27.5 billion, and $25.9 billion, respectively. As a result, the trade balance — the difference between exports and imports — has nearly halved, decreasing from $12.4 billion in September to $6.3 billion in November, a low not seen since July 2023, analysts at MMI note.

It is important to mention that Russia is isolated from global capital markets, and the surplus in goods trade is the main source of currency in the country. This surplus is used to finance the deficit in services (including foreign tourism), repay external debt, and meet the demand for foreign assets from individuals and businesses. $6 billion a month is not enough to meet the total currency demand.

Additionally, a significant portion of foreign trade is now being conducted in rubles. As a result, according to the Central Bank, in November, net currency sales by the 29 largest exporters reached a low not seen since July 2023, which, according to analysts at Raiffeisenbank, significantly contributed to the ruble's weakening in November. MMI analysts see two possible outcomes for the current situation: either a devaluation of the ruble followed by rising inflation or a suppression of imports and a decrease in demand for foreign assets in favor of ruble-denominated ones, which could be achieved through further increases in the key interest rate. It is essential to understand that this is happening against the backdrop of relatively high oil prices. However, a drop in prices due to a slowing Chinese economy, a shift towards alternative energy sources, and policy changes may influence this situation.