The Russian ruble plummeted below 100 per U.S. dollar on Monday, reaching its lowest level since March 2022, immediately following President Vladimir V. Putin’s full-scale invasion of Ukraine. Concerns about the weakening currency prompted the Russian central bank to announce an emergency meeting on Tuesday morning to discuss the key interest rate. The bank, which had previously raised its interest rate to curb inflation, has indicated its willingness to raise rates further.
This announcement briefly halted the decline of the ruble, as it weakened to around 102 to the dollar before bouncing back to just under 101. Since the beginning of the year, the ruble has lost more than 25% of its value against the dollar, raising fears of increased inflation. Kremlin supporters have criticized the country’s financial authorities in state news media for the ruble’s decline.
Maksim S. Oreshkin, an economic adviser to President Putin, wrote in an opinion column for the Russian state news agency Tass that the main cause of the ruble’s weakness and inflation acceleration is loose monetary policy. He stated that the central bank has all the necessary tools to rectify the situation in the near future. Oreshkin emphasized that a weak ruble complicates economic restructuring and negatively affects the population’s real incomes, asserting that a strong ruble is essential for the Russian economy.
Last week, Vladimir Solovyov, a commentator on Russian television supportive of the Kremlin, mocked the falling ruble, highlighting its subject of global derision. In an attempt to strengthen the ruble, Russia’s central bank announced a halt to its foreign currency purchases for the rest of the year. It followed this with a statement to Interfax stating it admits the possibility of raising the key rate at the upcoming meetings. Ultimately, due to the ongoing weakening of the ruble, the bank has scheduled an emergency meeting a month before its next rate-setting meeting in September.
In July, Russia’s annual inflation rate reached 4.3%, and the central bank predicts it could rise to as high as 6% by year-end. The concerns surrounding the ruble and inflation are the latest effects of President Putin’s war against Ukraine, which has also led to widening budget deficits. Questions about the sustainability of Russia’s extensive spending on the war are arising.
Despite these challenges, Russia’s economy grew by 4.9% in the second quarter of 2023 compared to the same period last year, surpassing expectations and marking the country’s first year-on-year increase in economic growth since the war began in Ukraine. The International Monetary Fund has increased its forecast for Russia’s economic growth in 2023 from 0.7% to 1.5%, following a contraction of 2.1% in 2022. The growth has largely been driven by state spending on the war, which has led to inflation and increased budget deficits.
After invading Ukraine in February 2022, Russia faced economic difficulties due to Western sanctions and capital outflows, causing the ruble to fall to 135 per dollar. However, a surge in oil prices and reduced imports helped the ruble recover, resulting in a record trade surplus of $221 billion in 2022. This year, the surplus has decreased, and oil revenues have declined due to a Western embargo and price restrictions.
Contributing reporting: Oleg Matsnev.
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