The aggressive interest rate hike by the central bank is futile. Russia has decided to reintroduce capital controls to support the ruble.

The Russian central bank's aggressive interest rate hikes have failed to reverse the continuous decline of the ruble this year. In response, the Russian government has resorted to a familiar tactic used during the escalation of the Russia-Ukraine conflict last year: capital controls. On the evening of October 11th, local time, the Russian government announced that it would require 43 of the country's largest export companies, including major oil producers, to sell the rubles they obtained from overseas sales in the domestic market to ensure foreign exchange supply. Russian First Deputy Prime Minister, Belousov, stated in a statement on Wednesday that the main purpose of these capital control measures is to "create long-term conditions for improving the transparency and predictability of the foreign exchange market and reducing the possibility of currency speculation." The Russian government will formulate detailed regulations on the volume of ruble transactions that large export companies must sell and require some companies to report their trading activities to the government. Analysts commented that both the Russian central bank and other government departments believe it is necessary to coordinate the buying and selling of rubles. This fact indicates that the situation in Russia's domestic foreign exchange market has deteriorated, and people now believe that the market lacks liquidity and operates in an unregulated manner. The latest measures may increase the supply of rubles in the coming weeks and months, but in the long run, they are unlikely to alleviate the pressure on the foreign exchange market. Wall Street CN previously mentioned that increased government spending, declining energy revenues, and Russians depositing funds into foreign accounts have all put pressure on the ruble. Elvira Nabiullina, the Governor of the Russian Central Bank, has repeatedly pointed out that the deterioration of foreign trade is the main cause of the ruble's depreciation. Before officially announcing the reintroduction of some capital control measures, the Russian central bank had previously taken frequent actions in an attempt to stop the devaluation of the ruble. In July of this year, the Russian central bank unexpectedly raised interest rates by 100 basis points. About three weeks after the rate hike, the Russian central bank announced the suspension of domestic market purchases of foreign exchange from August 10th until the end of this year. The timing of resuming foreign exchange purchases will be determined based on the actual situation of the financial market. On August 14th, Maxim Oreshkin, the Chief Economic Advisor to Russian President Putin, published a rare column in TASS, pointing the finger at the central bank for the ruble's problems. He believed that the issue was caused by loose monetary policy and stated that Russia needs a strong ruble and decision-makers need the necessary tools to normalize the value of the ruble in the near future. The day after Oreshkin's article was published, the Russian central bank held an emergency meeting on August 15th and raised the benchmark interest rate from 8.5% to 12%, a violent increase of 350 basis points. Shortly after the significant interest rate hike by the Russian central bank, it was reported by the media that Russia may partially reintroduce capital controls to prevent further depreciation of the ruble. The Russian government and exporters have discussed proposals to mandate the sale of export earnings. Afterwards, some media reported that the Russian government abandoned its plan for capital controls due to pressure from the central bank. On September 15th, the Central Bank of Russia announced another 100 basis points increase in interest rates to 13%, citing high inflationary pressures in the country. With this move, the Central Bank of Russia has raised interest rates by a total of 550 basis points in three months. However, the cumulative decline of the ruble remains unchanged. According to media statistics this Wednesday, the ruble is the third worst-performing emerging market currency this year, with a cumulative depreciation of nearly 26% against the US dollar, second only to the Argentine peso, which has fallen by over 49%, and the Turkish lira, which has fallen by nearly 33%.