Rosalind Evans
The Russian ruble’s value dipped to a low unseen since the initial stages of the Ukrainian conflict. This downward trend has been exacerbated by Moscow’s escalated defence expenditures and the impact of Western sanctions on Russia’s energy exports.
In response, the Russian Central Bank has scheduled an urgent session, anticipating potential adjustments to its primary interest rate. Such a move could raise borrowing costs to relieve the dwindling ruble.
As the exchange rate went beyond 101 rubles per US dollar, its worth has depreciated over 25% since the year’s start, hitting its weakest point in nearly 17 months. This slide, however, saw a minor reversal following the central bank’s announcement.
President Vladimir Putin’s economic advisor, Maksim Oreshkin, pinpointed the “lax monetary policies” as the cause for the ruble’s current plight in a recent Tass publication. Oreshkin emphasized that a robust ruble benefits the nation’s economy, and a frail one impedes economic metamorphosis and dampens the citizens’ actual earnings. He reassured that the central bank possesses the requisite instruments for stability and foresees a swift return to normalcy.
Central Bank’s Deputy Director, Alexei Zabotkin, recently affirmed the commitment to a fluctuating exchange rate system, explaining its role in helping the economy adjust to shifting global dynamics.
Experts attribute the ruble’s frailty to increased military expenditures leading to a surge in imports and a drop in exports, especially in the energy domain. A reduced trade surplus generally puts downward pressure on the national currency.
The nation’s economic landscape is evolving, with industries like textiles, pharmaceuticals, and food now focusing on fulfilling war-related demands, observed Alexandra Prokopenko from the Carnegie Russia Eurasia Center and the Russian central bank ex-official. Such a shift heightens the inflation risk, she added.
To mitigate this, the central bank intended to refrain from purchasing foreign currencies in the local market for the rest of the year. This decision aims to bolster the ruble and decrease fluctuations.
Traditionally, Russia engages in the sale of foreign currencies to offset oil and gas revenue deficits and acquires currencies during surpluses.
A significant 1% augmentation in the central bank’s principal interest rate occurred the previous month, with projections of continued inflation and the weakening ruble escalating risks. A subsequent meeting regarding this rate is set for 15 September.
Locals in Moscow on Monday exhibited apprehensions regarding the currency’s frailty.
“We’re likely to witness rising costs and declining quality of life. The poverty rates are already alarming,” commented Vladimir Bessosedny, a 63-year-old retired educator.
However, some remain optimistic about the transient nature of this ruble depreciation.
Earlier in the year, the ruble stood at approximately 66 to the dollar but experienced significant devaluation in the following months.
The ruble dropped dramatically to 130 against the dollar post the Western sanctions following the 2022 Ukraine invasion. Nevertheless, subsequent capital controls by the central bank stabilized it, bringing it to 50-60 against the dollar by the following summer.
Zabotkin recently refuted rumours of capital outflows causing the ruble’s depreciation, terming such claims as “baseless.”
The state of the Russian ruble, intertwined with geopolitical tensions and economic maneuvers, remains a crucial indicator of Russia’s financial health and international standing. While authorities appear poised to take corrective actions, the broader global and domestic factors will undeniably play significant roles in determining the currency’s future trajectory. As history has shown, currency markets are fickle and influenced by many factors. It remains to be seen whether the Russian ruble will regain its footing in the coming months.
