Russia's currency extended a rally that took it to the strongest level against the dollar in four years, prompting a warning from one of President Vladimir Putin's staunchest allies that the gains may be overdone.
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Even after Russia loosened capital controls on Monday, the ruble was higher against the dollar for a fifth day, trading up 2% after reducing the amount of foreign currency exporters required to convert.
The Russian currency is the best performer in the world this year, with a gain of 30% against the dollar. Since the invasion of Ukraine, the recovery has been so rapid that economists are warning that appreciation will batter budget revenue and hamper exporter competitiveness.
The ruble is strengthening at a crazy pace - we need to be careful not to overdo it, Belarus President Alexander Lukashenko said at a meeting with Putin on Monday.
He said that while the gains had baffled Western nations, they were expected by Belarus and Russia and that this would be a time of opportunity for their economies.
The ruble's surge on Monday caused a decision by the central bank to allow exports to convert 50% of their revenue instead of 80%, an emergency measure introduced as part of the capital controls to protect the ruble.
The restrictions are looking like a serious impediment.
With the collapse of imports amid the sweeping sanctions the US and its allies imposed on Russia, they have wiped out demand for foreign currency as dollars and euro pour in due to high prices for largely unannounced energy exports.
According to Iskander Lutsko, ITI Capital analyst Iskander Lutsko, even Monday s changes are unlikely to have much impact.
He said that because of low liquidity on the currency market, no more than 50% of the currency market's export transactions are already sold.
It is extremely difficult for the central bank to develop measures to stimulate demand for currency due to restrictions on currency purchases by individuals and falling imports in the current environment, according to Lutsko.
He predicted that the ruble would trade in a range of 60-65 per dollar in the near-term, before weakened to between 65 and 75 per dollar by the beginning of the third quarter as seasonal demand for Russia's energy exports eases.
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