Russian ruble plunges to nearly its lowest level in 17 months, surging past 100 against the dollar

The Russian ruble has recently dropped below 100 to the U.S. dollar, reaching a 17-month low. President Vladimir Putin’s economic advisor has pointed to loose monetary policy as the cause of the rapid depreciation.

Since the beginning of the year, the ruble has lost approximately 30% of its value against the dollar. The Bank of Russia attributes this depreciation to the country’s shrinking balance of trade, with Russia’s current account surplus falling 85% compared to the same period last year.

By late morning in London, the ruble was trading at around 101.41 to the dollar.

Maxim Oreshkin, Putin’s economic advisor, stated in an interview with Russia’s state-owned Tass news agency that the weakening currency and rising inflation are primarily the result of loose monetary policy. He also mentioned that the central bank has the necessary tools to rectify the situation in the near future.

According to a Google translation, Oreshkin said, “A weak ruble complicates the restructuring of the economy and negatively affects the real incomes of the population. In the interests of the Russian economy – a strong ruble.”

Last Thursday, the central bank decided to halt foreign currency purchases for the remainder of the year in an attempt to stabilize the ruble. However, concerns about increasing inflation have arisen as Russia strives to transform its economy amid growing isolation and Western sanctions.

Latest figures from the Federal State Statistics Service revealed that the Russian GDP exceeded expectations, growing by 4.9% year-on-year in the second quarter. This comes after a 1.8% contraction in the first quarter.

William Jackson, chief emerging markets economist at Capital Economics, cautioned that limited slack in the economy could further intensify inflation pressures and result in tightening monetary policy, potentially weakening growth for the remainder of the year and into 2024.

Jackson added, “Perhaps the key risk to the economy is if the government keeps fiscal policy loose to support the war effort, which would cause Russia’s economic vulnerabilities to worsen further.”