The Russian ruble has fallen to its lowest value since the early weeks of the war in Ukraine as Moscow increases military spending and Western sanctions weigh on its energy exports.
On Monday, the Russian currency passed 101 rubles to the dollar, continuing a more than 25% decline in its value since the beginning of the year and hitting the lowest level in almost 17 months.
President Vladimir Putin’s economic adviser, Maksim Oreshkin, blamed the weak ruble on “loose monetary policy” in an article for state news agency Tass.
He said a strong ruble is in the interest of the Russian economy and that a weak currency “complicates economic restructuring and negatively affects people’s real incomes”.
Mr Oreshkin said Russia’s central bank has “all the tools necessary” to stabilise the situation and that he expects normalisation shortly.
The bank is adhering to a floating exchange rate because “it allows the economy to effectively adapt to changing external conditions”, central bank deputy director Alexei Zabotkin told reporters on Friday.
Analysts say the weakening of the ruble is being driven by increased defence spending – leading imports to rise – and falling exports, particularly in the oil and natural gas sector.
Importing more and exporting less means a smaller trade surplus, which typically weighs on a country’s currency.
The Russian economy is now “working on different types of state orders related to the war, such as textile enterprises, pharmaceuticals and the food industry”, said Alexandra Prokopenko, non-resident scholar at the Carnegie Russia Eurasia Centre and a former Russian central bank official.
Moving the entire economy to a war footing not only drives up imports but also raises the prospect of worsening inflation, she said.
To help reduce that prospect, the central bank said last week that it would stop buying foreign currency on the domestic market until the end of the year to try to prop up the ruble and reduce volatility.
Russia typically sells foreign currency to counter any shortfall in revenue from oil and natural gas exports and buys currency if it has a surplus.
The central bank also increase its key interest rate by 1% last month, saying inflation is expected to keep rising and the fall in the ruble is adding to the risk.
Mr Zabotkin indicated that the rate – now at 8.5 per cent – could be raised again at the next meeting on September 15th.
On Monday, some Russians in Moscow appeared concerned about the weakening currency.
“Prices will rise, which means that the standard of living will fall. It has already fallen, and it will fall even more – there are definitely more poor people,” said 63-year-old retired teacher Vladimir Bessosedny.
Others hoped the fall of the ruble is temporary and that it will stabilise.
In January, the ruble traded at about 66 to the dollar but lost about a third of its value in subsequent months.
After Western countries imposed sanctions following the invasion of Ukraine in February 2022, the ruble plunged as low as 130 to the dollar, but the central bank enacted capital controls that stabilised its value. By last summer, it was in the 50-60 range to the dollar.
Mr Zabotkin said on Friday that international sanctions had cut off a significant amount of imports to Russia, contributing to the ruble’s fall, but he dismissed speculation that capital flight from Russia also was to blame, saying the idea was “not substantiated”.
