Aerial view of Moscow Kremlin landmarks: Saint Basil’s Cathedral, Kremlin, Spasskaya Tower and Red Square
Sergey Alimov | Moment | Getty Images
Russian authorities are trying to contain panic over the ruble’s sharp depreciation this week, with the central bank forced to intervene on Wednesday to support the currency.
this ruble It fell to 114 against the dollar on Wednesday, hitting its lowest level since March 2022, shortly after Russia invaded Ukraine.
The Central Bank of Russia (CBR) was forced to intervene that day to support the ruble, explain It will halt foreign purchases in the domestic currency market for the remainder of the year “to reduce volatility in financial markets.”
Following the intervention, the ruble was trading at 110 against the dollar on Thursday morning.
Kremlin spokesman Dmitry Peskov seemed dismissive of the decline on Wednesday, telling a reporter This does not affect ordinary Russians because their salaries are rublesAccording to a report by Russian media Google Translate.
USD/Russian ruble foreign exchange spot rate
Close followers of Russian geopolitics and macroeconomics say the ruble’s depreciation shows that economic conditions in Moscow are deteriorating rapidly.
Timothy Ashe, emerging markets strategist at BlueBay Asset Management, described the ruble as “in free fall” and said “a real currency crisis appears to be brewing in Russia.”
“A weaker ruble means higher inflation, a corresponding increase in the CBR policy rate, and therefore lower real GDP growth,” Ashe said in emailed comments.
Part of the reason for the ruble’s collapse is US imposes new sanctions on Gazprombank The policies announced by the White House last week, along with a war-centered domestic economy, have led to soaring inflation.
The central bank has raised interest rates to 21%, but this has not curbed the crazy rise in prices. Inflation reached 8.5% in October, while the price of basic food items such as butter and potatoes also soared by 20%.
The government blames the high cost of living on sanctions imposed on Russia by “unfriendly” countries to divert attention from the war in Ukraine, while the conflict has caused labor and supply shortages, driving up wages and production costs.
Russian President Vladimir Putin has denied trading “butter for guns” despite rising price pressures amid a sharp increase in defense spending and an increase in domestic weapons production.
The Russian economy managed to grow during the war, thanks in large part to Russian oil and gas exports to a handful of countries willing to turn a blind eye to the conflict. The International Monetary Fund raised its forecast for Russia’s GDP in its Autumn Economic Outlook, now predicting economic growth of 3.6% in 2024.
Still, it pointed to the economic slowdown, forecasting growth of 1.3% in 2025, which it said reflected “a sharp slowdown… as less labor market tightness and slower wage growth lead to a slowdown in private consumption and investment.”
“A crisis is forming”
The Biden administration is making a last-ditch effort as the ruble depreciates.and The Kremlin is under pressure ahead of President-elect Donald Trump’s inauguration in January.
The latest round of sanctions against Gazprombank, Russia’s third-largest bank, are considered particularly painful for Russia because they prevent the financial institution from processing any energy-related transactions involving the U.S. financial system. The U.S. Treasury Department has also accused the bank of being a conduit through which Russia purchases military supplies and pays Russian soldiers for its war in Ukraine.
On November 16, 2024, Russian conscripts sat on a bus in Bateysk, Rostov region, Russia, preparing to leave for the garrison.
Sergei Pivovarov | Reuters
The White House had previously been wary of sanctioning the bank, which is also used to receive payments from European buyers of Russian gas, but most of those consumers have wanted to significantly reduce their purchases of Russian gas since the war began.
“For several months we have seen tougher sanctions – sanctions on (Moscow Stock Exchange) MOEX, OFAC (Office of Foreign Assets Control) and now Gazprombank, Russia’s foreign trade It becomes more difficult,” said BlueBay Asset Management’s Ash.
Economists say there is no doubt that the war and Western measures aimed at punishing Russia for the invasion are starting to really take effect.
RSM US chief economist Joseph Brusuelas commented on Wednesday that as the ruble falls further, people may think that two years of sanctions are starting to wreak havoc on the Russian economy.
In his comments, he said the Russian economy appeared to be “an overheated economy that is struggling to support its war effort (and) depleting its resources” Posted on Xnoted that the central bank appears to have exhausted “extraordinary measures to avoid the obvious outcome of halting foreign currency purchases starting today.”
“The central bank has halted foreign exchange purchases until the end of the year in an attempt to tame financial market volatility. The ruble has fallen 35% since August as inflation wreaks havoc on the domestic economy and the Kremlin makes a fateful choice between guns and butter. battle,” he said, urging observers to “watch this area closely for signs of broader economic troubles as inflation soars and prices on the black market tell a very different story than a wartime economy on the verge of collapse.
Russian President Vladimir Putin talks with Kremlin spokesman Dmitry Peskov at the summit of leaders of the Commonwealth of Independent States (CIS) member states in Moscow, Russia, on October 8, 2024.
Sergei Ilnitsky | Reuters
Russian officials were quick to downplay the sharp depreciation of the ruble, saying once The decline was again blamed on sanctions.
On Wednesday, Russian Economic Development Minister Maxim Reshetnikov told reporters that the dynamics of the ruble’s exchange rate were not determined by “fundamental factors.”
“The current weakening in exchange rates has nothing to do with fundamentals, we are seeing strong trade balances,” he said, according to comments translated by Google. According to the Russian Interfax news agency.
“The main factors for the weakening of the dollar are the strengthening of the dollar against world currencies and … the backdrop of renewed tightening of sanctions on the Russian Federation,” he told reporters in Astana. “Moreover, as often happens in this case, There is an excess of sentiment in currency markets right now and experience shows that exchange rates always stabilize after a period of heightened volatility.”
