On Monday, the Russian ruble experienced a decline, falling below the 100 mark against the dollar. That marks its weakest point since March 23, 2022, a few weeks after Moscow initiated full-scale conflicts in Ukraine. This year, the ruble has devalued by approximately 30 percent compared to the dollar, attributed to increased imports and decreased exports for the nation.
Russian ruble reaches almost a 17-month low against the euro
According to Moscow Exchange data, the ruble was observed trading at 101.01 to the dollar. Simultaneously, it experienced a significant drop against the euro, reaching a nearly 17-month low of 110.73.
Alor Broker analyst Alexei Antonov cautioned that the ruble might continue its downward trajectory, potentially reaching 115-120 against the dollar. This warning was conveyed in a memo circulated by financial firms on Monday. Antonov emphasized that a cessation of the ruble’s decline would necessitate a reduction in imports or decisive actions taken by the monetary authorities.
Russia’s central bank had previously raised its key interest rate to an unexpectedly high 8.5 percent in July to stabilize the currency. Furthermore, in the past week, the central bank deviated from its budget rule to address the currency’s instability.
As the ruble’s value diminishes, concerns have emerged about the potential impact on the standard of living for ordinary Russian citizens, given the gradual rise in inflation.
Ruble’s value has been depreciating
The ruble has experienced a tumultuous journey following Russia’s invasion of Ukraine. Initially responding to immediate war-related sentiments, it plummeted to unprecedented depths against the dollar. However, it subsequently rebounded, reaching its highest valuation against the greenback since 2015, thus securing its position as one of the globe’s top-performing currencies. The ruble’s value has been significantly influenced by international trade dynamics, especially concerning Russia’s pivotal energy exports.
As a prominent supplier of oil and gas, Russia’s primary customer, Europe, has been gradually reducing its dependence and implementing measures such as price limitations, which have acted as a dampener. These prices are rising due to a surge in oil demand, prompting Moscow to explore alternative markets in Asia, notably China and India.
In the most recent downturn, the ruble finds itself in the company of Turkey’s lira and Argentina’s peso as one of the three weakest-performing currencies from emerging markets against the US dollar this year.
Maxim Oreshkin, an economic advisor to Russian President Vladimir Putin, conveyed that the Kremlin foresees the currency stabilizing shortly. He shared this perspective in an op-ed he composed for the TASS news agency. Oreshkin, advocating for a strong ruble, attributed the recent decline of the currency and the hastening inflation to the “accommodative monetary policy” pursued by Russia’s central bank. This criticism from Oreshkin towards the central bank is an unusual instance of public disagreement among Moscow’s governing bodies since the commencement of the Ukraine invasion.
In contrast, the central bank, which unexpectedly increased interest rates at a more pronounced pace in July and ceased foreign currency purchases for the remainder of the year to reinforce the ruble, provides a distinct rationale for the ruble’s descent. Specifically, they point to the nation’s deteriorating trade relations with international partners. The central bank is anticipated to enact further interest rate hikes soon.
Meanwhile, to bolster the currency and counteract concerns about inflation, the central bank discontinued foreign currency purchases for the remainder of the year. This move has sparked worries about increasing inflation as Russia strives to fundamentally reshape its economy amidst growing isolation and punitive sanctions from Western nations.
New data from the Federal State Statistics Service revealed that the Russian GDP outperformed expectations, registering a 4.9% year-on-year growth in the second quarter. This rebound comes after a 1.8% contraction experienced in the initial quarter.
However, William Jackson, Chief Emerging Markets Economist at Capital Economics, highlighted that the economy’s limited leeway is likely to intensify inflationary pressures. That could lead to tighter monetary policies, potentially dampening growth for the remainder of this year and extending into 2024. Jackson also noted a significant economic risk: if the government maintains a lenient fiscal policy to sustain the war effort, it could exacerbate Russia’s economic vulnerabilities.
