For the past seventeen months, Russian President Vladimir Putin refused to admit the reality of international sanctions after he invaded Russia’s neighbour Ukraine, and killed scores of Ukrainians.
The Russian currency has broken another threshold in its decline in value. Over the weekend, 1 ruble was worth only 1 US cent. This means 100 rubles had to be paid for $1 US. The ruble also continued to lose value against the euro, with €1 at times costing nearly 110 rubles.
The ruble fell to its lowest point since March 2022 when the currency crashed following Russia’s invasion of Ukraine. In the following few months, the currency regained the lost ground as Russia benefited from significantly higher energy prices. However, over the past year, the ruble has steadily declined.
By comparison, prior to the Russian occupation of Crimea in 2014, 30 rubles was equivalent to $1. In the past year alone, the ruble has lost more than 30% of its value against the dollar and the euro.
On Tuesday, Russia’s central bank hiked its key interest rate by 350 basis points to 12% to arrest the ruble’s slide. The extraordinary rate move follows a greater-than-expected hike to 8.5% in July to prop up the currency.
The ruble was trading at 98.03 against the dollar following the decision, above lows near 102 on Monday.
Central bank in the line of fire
Bank of Russia Governor Elvira Nabiullina has blamed declining foreign trade for the currency’s weakness, and attributed higher inflation to heavier government expenditure and labor shortages caused by the costly war effort.
In a statement on Monday, the Russian central bank said the value of exports is facing a “significant reduction” at a time when demand for imports is on the rise against the background of elevated government spending and also as a result of fast lending growth.
However, Bank of Russia Deputy Governor Alexei Zabotkin told reporters on Friday that they don’t see any risks to financial stability.
“The central bank continues to adhere to a floating exchange-rate policy that allows the economy to adapt effectively to changing external conditions,” he said.
Maxim Oreshkin, an economic adviser to the government, blamed the central bank for contributing to declines in the ruble. In a column for state news agency Itar-Tass on Monday, he said “the source of the weakening of the ruble and the acceleration of inflation is [the central bank’s] soft monetary policy.”
Earlier this year, Nabiullina had mentioned a range of 80 to 90 rubles per dollar as a “comfort zone.” The ruble broke out of this zone in early summer.
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