Russia’s ruble has fallen to its lowest level against the U.S. dollar since the beginning of its full-scale invasion of Ukraine, a potential result of new U.S. sanctions and the latest sign of a struggling wartime economy. Russia’s central bank said on Wednesday it would stop foreign currency purchases for the rest of the year after the ruble weakened beyond 110 rubles to the U.S. dollar, down by one-third since early August. “The decision was made to reduce the volatility of financial markets,” the regulator said in a statement.
The ruble’s slide comes days after the U.S. on Thursday sanctioned Russia’s third largest bank, Gazprombank, and its six foreign subsidiaries, which have handled most foreign payments for natural gas exports. Earlier rounds of sanctions spared Russian gas because Europe’s economy was so dependent on it, but European countries have since lined up alternative supplies and are now far less reliant on Russian gas.
Russia’s finance minister, Anton Siluanov, told a financial conference in Moscow this week that a weak ruble was “very, very favourable” for exporters — suggesting the Kremlin may be content with letting the exchange rate slide. Russia published new economic data on Wednesday highlighting the latest signs of overheating in an economy retooled for the purpose of fighting the war in Ukraine, which has sucked workers out of the labour force.
Real wages were up 8.4 per cent in September in year-on-year terms, unemployment hit a record low 2.3 per cent in October, and weekly inflation stands at almost 0.4 per cent. Overall inflation has remained stubbornly around eight per cent — twice as high as the central bank’s target. The bank last month raised its base interest rate to a record-high of 21 per cent in an effort to rein inflation in, but massive government spending on both the military and the struggling labour force has made it difficult.
The ruble’s fall could further fuel inflation, according to the central bank’s own estimates that predict a 10-per cent weakening of the currency adds 0.5 percentage points to inflation. That implies the four-month fall could add 1.5 per cent to the current rate. “For the central bank, it represents a challenge in combating rising prices,” economist Evgeny Kogan told Reuters.
Independent Russian economists have said the economy is moving into a period of “stagflation” — a combination of high inflation and low growth. More than one-third of next year’s budget has been allocated toward the military-industrial complex as Moscow continues to press ahead with its war in Ukraine. Sundstrom said there could be an economic “crisis” if the war ends and that money is no longer flowing.
Conclusion:
The ongoing war in Ukraine and the subsequent economic sanctions have had a significant impact on Russia’s economy, leading to a weakening of the ruble and a rise in inflation. The central bank’s decision to stop foreign currency purchases and the finance minister’s comments on the favourable exchange rate suggest that the Kremlin may be willing to accept a weaker ruble in the short term. However, this could have long-term consequences for the economy and the country’s ability to recover from the war.
FAQs:
* What is the current exchange rate of the ruble against the U.S. dollar?
The ruble has fallen to its lowest level against the U.S. dollar since the beginning of the war, with a current exchange rate of around 110 rubles to the U.S. dollar.
* What are the reasons for the ruble’s decline?
The ruble’s decline is attributed to new U.S. sanctions and the ongoing war in Ukraine, which has led to a decrease in foreign currency reserves and an increase in inflation.
* What is the impact of the ruble’s decline on the economy?
The ruble’s decline could further fuel inflation, according to the central bank’s estimates, and could have long-term consequences for the economy and the country’s ability to recover from the war.
* What is the current state of the economy?
The economy is experiencing overheating, with real wages up 8.4 per cent in September and unemployment at a record low of 2.3 per cent. However, inflation remains high at around 8 per cent, and the central bank has raised its base interest rate to a record-high of 21 per cent in an effort to rein inflation in.
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