The ruble has been at its weakest against the dollar since March 2022. The Russian currency, which has lost nearly 40 percent of its value this year, crossed the psychological mark of 100 rubles against the US currency on Monday. According to CNN, this is a result of Western sanctions and restrictions on export earnings. The Russian central bank announced on Monday afternoon that it had convened an extraordinary meeting on interest rates.
The Russian currency collapsed immediately after Russia’s invasion of Ukraine in February 2022, initially falling to 136 rubles to the dollar in March 2022, then reaching 100 rubles to the dollar, according to Bloomberg. A few months later, in June last year, the Russian currency rose to 50 rubles to the dollar due to rising oil and gas prices.
But obstacles pay off. Due to Russia’s aggression against Ukraine, European countries have turned their backs on Russian gas and oil and imported raw materials, e.g. From USA, Canada and Norway. This has affected Russia’s finances, which are under pressure from rising costs mainly due to the war effort. Russia has doubled its military spending to more than $100 billion by 2023, according to a government document accessed by Reuters. It is one-third of the total public expenditure.
The Russian central bank is considering raising interest rates
CNN notes that Western sanctions have reduced foreign investment in the country and frozen exports. According to Elvira Nabiullina, head of the Russian Central Bank, a fall in exports coupled with an increase in imports driven by strong domestic demand has further weakened the ruble.
The central bank on Monday said increased government “demand” boosted overall activity in the economy, putting upward pressure on inflation and contributing to a weakening ruble.
CNN indicates that the central bank may raise interest rates soon to curb inflation. “The Bank of Russia allows for the possibility of raising the key interest rate at upcoming meetings,” it said in a statement made available to the US station.
Last month, Russia’s central bank raised its key interest rate to 8.5 percent for the first time in more than a year, citing rising inflation and a weakened currency.
Putin’s Economist Blames Central Bank
Immediately after hostilities began, an “emergency” increase to 20 percent was passed, but over time the rate was gradually reduced to 7.5 percent.
Maksym Oreshkin, Putin’s economic adviser, blamed the central bank for the currency devaluation and agreed that a weak ruble was bad for the Russian economy. In an article for Russian state news agency TASS published on Monday, he said, “The main reason for the weakening ruble and accelerating inflation is loose monetary policy.
“The central bank has all the necessary tools to stabilize the situation in the future,” Oreshkin said, “a weak ruble complicates the restructuring of the economy and has a negative impact on people’s real incomes,” he argued.
Extraordinary meeting of Central Bank
After 4pm Polish time, the Russian Central Bank announced that it will hold an extraordinary meeting on Tuesday to discuss the level of interest rates.
The next meeting to discuss the level of interest rates is scheduled for September 15. The bank said it would announce the board’s decision at 10:30 a.m. Moscow time (9.30 a.m. Polish time).
After news of the unusual meeting, the ruble recovered slightly and strengthened below 100 per dollar.
Main photo source: PAP/EPA
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