2023-08-14 17:43:09
► How long has the ruble been falling?
It now takes more than a hundred rubles to get a dollar. At the end of the day on August 14, one dollar was worth exactly 100.745 rubles, after having appreciated by 0.75% compared to the previous day. Already, since last July 27, the threshold of 100 rubles for one euro had been crossed. This is the consequence of the continuous decline of the Russian currency.
The ruble began its slide last September. At the time, it took 60 rubles for one euro. It now takes 110. For eleven months, the value of the Russian currency has continued to erode. It has lost 38% in one year against the dollar and the movement has accelerated in recent weeks.
The value of the ruble has fluctuated a lot since the outbreak of the invasion of Ukraine in February 2022. The Russian currency first suffered a powerful shock. She saw in a few days its value almost halved. But the ruble had quickly recovered thanks to the action of the Central Bank of Russia (BCR): a control of capital outflows and a massive increase in interest rates, brought to 17.5%. Russia had also benefited from the surge in oil and gas prices. But since then, the context has changed.
► What causes this erosion of the value of the ruble?
As a note from the Asterès firm indicates, the continuous decline of the ruble for months “is probably explained by a reduction in energy revenues and by a flight of capital”. He adds that “the trend has accelerated since the abortive coup of the Wagner group”.
While the war unleashed against Ukraine has taken hold, Russia has seen its spending grow and its revenues fall. It can no longer derive all the benefits from its oil and gas because it has lost the European market and is forced to sell its oil below the world price. Customers from Russia (India, Turkey or China) now demand a discount which can reach 20 dollars per barrel.
The BCR, for its part, explains the fall of the ruble by an increase in imports. On the contrary, Maxime Orechkine, economic adviser to Vladimir Putin, questions “the accommodative policy of the central bank of Russia” who would be responsible for the fact that “the current ruble exchange rate has significantly deviated from its fundamental levels”, he said in an interview with the Tass agency. It is rare that Maxime Orechkine expresses himself on the conduct of monetary policy. The fact that he does so demonstrates that a certain nervousness is creeping into Russian ruling circles.
► What could be the consequences for Russia?
The weaker ruble should translate into higher inflation in Russia, as many products are imported. There is therefore a risk of loss of purchasing power for Russians. Inflation in Russia soared to 17% in the spring of 2022 before being brought under control. It was 4.3% in July.
Faced with this situation, the BCR will no doubt be forced to raise interest rates, which had fallen considerably. They are currently at 8.5%. She announced this Monday, August 14, a surprise meeting: “On Tuesday, August 15, 2023, a meeting of the Board of Directors of the Bank of Russia will be held to consider the issue of the level of key interest rates”wrote the BCR in a press release.
According to Bloomberg’s calculations, they should rise to 10% if Russia wants to avoid a new inflationary crisis. A rise in interest rates will certainly weigh on growth, which had just returned to positive territory last quarter, after a year of recession.
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