Faced with the fall of the ruble, the Russian Central Bank meets urgently

2023-08-16 17:44:01

The fall of the ruble is accelerating, the Russian currency hits its lowest level since March 2022, just after the outbreak of the war in Ukraine.

It’s a psychological milestone that has just been reached, that of 100 rubles for a dollar. A spectacular drop in the Russian currency which last January was still trading on the basis of 70 rubles for one dollar. Since the start of the year, the ruble has therefore lost 30% of its value against the greenback, and even 67% over one year. A slide that the Russian Central Bank itself cannot stop. After raising its rates to 8.5% at the end of July, it had to suspend its purchases of foreign currencies – dollar, euro and Chinese yuan – last week to try to limit the breakage. Faced with the urgency of the situation, the Bank of Russia is meeting today to decide on the level of its key rates. In the meantime, the Kremlin is getting impatient and demanding a strong rouble, it makes its central bank responsible for the current situation.

The weight of international sanctions

This accelerating plunge in the ruble can be explained by several factors which combine to form an explosive cocktail: the deterioration of the Russian trade balance accentuated by the fall in its oil and gas revenues, the flight of capital linked to the instability political, and financial burden of the war in Ukraine. Under the effect of international sanctions that have been raining down for a little over a year, Russia has seen its sales of hydrocarbons – which are its main source of budgetary income – fall sharply. They fell by another 41% between January and July, according to figures from the Russian Ministry of Finance.

The other aggravating factor is capital flight, which increased with Wagner’s aborted coup last June. Within days, Russians rushed to withdraw their savings, the equivalent of one billion rubles, or nearly $1 billion, according to the Central Bank. Money, which despite the controls, was able to leave the country in part, in addition to the 150 billion dollars of capital flight recorded in 2022 according to the Bloomberg agency, enough to fuel a little more distrust of Russia . We may read here and there that the Russian economy is resisting the sanctions rather well with a GDP which rebounded by 4.9% in the second quarter, the contraction has been such for a year that Russia has still not regained its level of pre-war production in Ukraine.

Life is getting expensive in Russia

The most problematic thing for the Russians is the inflation that hits them in the wallet, especially pensioners with small pensions. With the fall of the rouble, the prices of imported products are soaring and shopping is becoming a headache. A Muscovite, interviewed by Agence France Presse (AFP), confides that a meal for his family which cost him 1,000 rubles – just under 10 euros – not so long ago, costs him today more than double. After falling to 4.3% over one year last July, inflation could rise again as the ruble continues to fall.