This analysis explores the Purchasing Power Parity (PPP) exchange rate between the Russian Ruble (RUB) and the US Dollar (USD) using historical price level data from both countries.
Purchasing Power Parity (PPP) is an economic theory that compares different countries' currencies through a "basket of goods" approach. According to PPP, exchange rates between currencies should adjust to equalize the price of similar goods in different countries.
When a country's market exchange rate differs from its PPP rate:
This analysis calculates PPP exchange rates ending on 3/31/2025 using multiple starting periods from 1992 to 2020. By comparing these calculated PPP rates to the actual market exchange rate, we can assess whether the ruble is currently overvalued or undervalued relative to PPP.
For each starting date, we calculate the PPP exchange rate at the end period (3/31/2025) using the formula:
PPP = (RUend/RUstart) / (USend/USstart) × ExRatestart
Where:
The analysis shows that based on multiple starting periods, the median PPP exchange rate is around 78 RUB/USD as of March 31, 2025. With an actual market rate of 84.31 RUB/USD, this suggests the ruble is currently undervalued by approximately 8% compared to what PPP would predict.
This undervaluation means:
Potential factors behind this undervaluation may include: