Russian Ruble Hits Lowest Point in 17 Months, Prompting Central Bank Meeting
The Russian ruble fell to its lowest point in 17 months on Monday, briefly sliding past 102 to the dollar. This prompted Russia’s Central Bank to call an extraordinary meeting on Tuesday to discuss the level of its key interest rate.
Since Russia’s invasion of Ukraine last year, the ruble has lost about a quarter of its value against the dollar. The Western sanctions imposed on Russia have greatly impacted its trade balance, and the country’s military spending has skyrocketed as the initial lightning offensive has turned into a grueling battle with no clear end in sight.
In response to the sudden drop in the ruble’s value, Russia’s Central Bank assured that it would not threaten the country’s overall financial stability. The bank attributed the fall to lagging exports and an increased demand for imports.
Maxim Oreshkin, Russian President Vladimir Putin’s economic adviser, wrote in an op-ed for the Tass news agency that the ruble weakening and accelerating inflation were primarily caused by a soft monetary policy. He expressed confidence in the Central Bank’s ability to normalize the situation soon.
Additionally, a budget deficit and a significant labor shortage have contributed to rising inflation in Russia. A recent survey revealed that over 40 percent of Russian industrial enterprises faced a shortage of workers last month, exacerbating a trend that began when Putin initiated a nationwide military mobilization in September.
Economic analysts suggest that the recent mutiny led by Wagner boss Yevgeniy Prigozhin, as well as rumors of a new wave of mobilization, may have also played a role in the ruble’s depreciation.
While Russia still maintains a fairly robust trade surplus, it has not been sufficient to counter capital flight and stabilize the exchange rate. Standard adjustments in fiscal policy have proven ineffective, leading experts to propose the reintroduction of financial restrictions similar to those implemented at the start of the war. Last week, the Central Bank announced a halt to foreign currency purchases until the end of the year.
Oleg Itskhoki, a professor of economics at UCLA, stated that the latest drop in the ruble is part of a permanent trend of depreciation and acceleration, rather than a spontaneous crisis. He noted that the mass switch of savings from rubles to dollars could trigger a tsunami of depreciation, although it remains unlikely.
Meanwhile, in Ukraine, officials in the Black Sea port city of Odessa reported that Russia launched three waves of drone and missile attacks, resulting in significant damage to a supermarket, a residential building, and a school. Ukrainian forces have made some advances in their slow-moving counteroffensive near the besieged eastern city of Bakhmut.
In response to the ongoing conflict, the Biden administration announced an additional military aid package of $200 million to meet Ukraine’s critical security and defense needs. This marks the 44th tranche of equipment provided to Kyiv since August 2021.
As the Russia-Ukraine conflict continues to escalate, the ruble’s decline and the economic challenges facing Russia raise concerns about the country’s financial stability and its ability to sustain military efforts in Ukraine and elsewhere.
Ebel reported from Tunis and Khurshudyan from Kyiv.
Understanding the Russia-Ukraine conflict