The Russian currency has fallen to its lowest level since the early stages of the Ukrainian crisis, as Moscow increases military spending and faces the impact of Western sanctions on its oil exports.
This situation prompted Russia’s central bank to call an emergency meeting on Tuesday (August 15) to examine the country’s key interest rate.
Monday’s collapse in the Ruble enhances the prospect of a rise in borrowing costs, which would help the floundering currency.
The Russian currency had crossed the 101 ruble-to-dollar benchmark, representing a drop of more than one-third in value since the start of the year and the lowest level in nearly 17 months.
The ruble’s value recovered slightly after the central bank’s announcement.
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The conference was called in response to comments made by Maksim Oreshkin, President Vladimir Putin’s economic advisor, in a Monday op-ed for the state news agency Tass, in which he blamed the falling currency on “loose monetary policy”.
Oreshkin emphasised that a strong ruble is in the best interests of the Russian economy, and that a weak currency “complicates economic restructuring and negatively affects people’s real incomes”.
Oreshkin stated that the Russian central bank has all of the necessary tools to stabilise the situation and expressed hope for a return to normality shortly.
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On Friday, the bank’s deputy director, Alexei Zabotkin, told reporters that the bank maintains a flexible exchange rate approach because “it enables the economy to effectively adapt to shifting external circumstances.”
Analysts believe that the ruble’s devaluation is being pushed by rising defence spending, which is leading to increased imports and decreased exports, particularly in the oil and natural gas sectors.
Higher imports and fewer exports contribute to a decreased trade surplus, which normally puts downward pressure on a country’s currency.
The ruble’s survival and the Russian economy’s resilience in the last year have been attributed to comprehensive capital controls, an abrupt increase in the emergency interest rate, and a rapid increase in the production of military equipment such as rifles, missiles, tanks, and artillery shells intended for deployment against Ukraine.
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However, now that the conflict has lasted a year and a half and additional Western sanctions, such as price caps on oil and significant reductions in European purchases of Russian gas, have been imposed, the ruble’s depreciation highlights the challenges Moscow will face in attempting to replicate the crisis management actions of the previous year.
For Russians who have grown accustomed to economic upheaval in the thirty years after the Soviet Union’s breakup, the ruble’s exchange rate has enormous symbolic significance as an indicator of the general health of the economy.
Economists believe that the entry into the triple-digit value area may further drive Russians to move their assets out of the nation or, at the very least, into alternative currencies.
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