War and how it ends
War and how it ends
How the Russian currency collapsed in a day
It is clear that Russia will not be able to overrun Ukraine. Vladimir Putin, the Russian president, has gone much beyond his authority. His military ministry has lowered its war objectives. The army now professes to be exclusively interested in gaining control of Ukraine's eastern Donbas area. If Putin follows through on his promise, the pressure on Kyiv and the Black Sea coast will be relieved. The conflict has come to a halt, and it may even turn against Russia. There's plenty of reason to be skeptical. Because Russia is stalemated in the conflict, and possibly on the verge of losing, Putin has narrowed his objectives. Putin is unlikely to have altered his mind about Ukraine being a phony country that Russia should rule.
This partial de-escalation is, however, the first step in resolving the dispute. Putin's drive has come to an end, and he is unlikely to achieve any significant additional advances. Perhaps concentrating his forces in one area of operations would help him turn things around, but the Ukrainian military has already shown that it is capable and has strong morale. It's also getting a slew of NATO weapons and assistance. And, as time goes on, the sanctions will have a more significant impact on the Russian economy.
As a result, a stalemate in Donbas appears to be a foregone conclusion. Russia will sue for peace at some time after that. As the tide shifts, Putin will be compelled to call a halt to the combat at the pinnacle of his territorial expansion. Ukraine, understandably, will have conflicting sentiments over the decision. It will regard Russian weakness as an opportunity to reclaim previously lost territory. In the coming months, the two sides are likely to battle to a standstill.
Therefore, as a consequence, the ruble has lost more than 30% of its value in the previous week and is currently worth less than a cent. The rate of change is faster than it was in 2014 when Russia switched to a floating currency rate in the wake of the invasion of Crimea, sanctions, and a severe decrease in world oil prices. Russia was able to use its massive foreign currency reserves to gradually stabilize the ruble in 2014. Following the decision to shut off select Russian banks from SWIFT, the financial messaging system used by more than 200 nations to coordinate money transactions between banks across the world, that ability has been severely limited.
The significant depreciation of the ruble might have a negative impact on Russia's economy. Russia's inflation rate topped 9% on February 25th, above the country's objective of 4%. In an attempt to avert a bank run, the Russian central bank increased its benchmark interest rate to 20% on February 28th. The world's tight line for managing inflation without severely hurting the economy is now considerably finer in Russia, with global repercussions expected. Inflation, the direction of increasing interest rates, and geopolitical tensions will continue to be major risk concerns for investors this year, and we will keep clients informed of events and any relevant portfolio suggestions.