Aerial view of Moscow Kremlin landmarks: St. Basil's Cathedral, Kremlin, Spasskaya Tower, Red Square
Sergei Alimov | Moments | Getty Images
Russian authorities are trying to contain panic over this week's plunge in the ruble, forcing the central bank to intervene on Wednesday to support the ruble.
of ruble It fell to $114 against the US dollar on Wednesday, its lowest since March 2022, just after Russia invaded Ukraine.
The Central Bank of Russia (CBR) was forced to intervene on the day to support the ruble. I'm saying Domestic currency purchases from abroad will be suspended for the remainder of the year “to reduce volatility in financial markets.”
After the intervention, the ruble was trading at $110 against the dollar on Thursday morning.
Kremlin spokesman Dmitry Peskov on Wednesday expressed a negative attitude about the population decline, telling a reporter: Ordinary Russians receive their salaries in rubles, so this won't affect them.according to a Google translation of Russian media reports.
USD/Russian ruble FX spot rate
Those familiar with Russia's geopolitics and macroeconomics argue that the ruble's weakness indicates that Moscow's economic situation is rapidly deteriorating.
Timothy Asch, emerging markets strategist at BlueBay Asset Management, described the ruble as being in “free fall” and said it appeared “a proper currency crisis is brewing in Russia.”
“A weaker ruble means higher inflation, a corresponding increase in the CBR policy rate, and a consequent decrease in real GDP growth,” Asch said in emailed comments.
Part of the reason for the collapse of the ruble was New US sanctions against Russia's Gazprombank It was likewise announced by the White House last week that the war-centered domestic economy had caused a spike in inflation.
The central bank has already raised interest rates to 21%, but so far this has not stemmed rampant price rises, with inflation reaching 8.5% in October and basics such as butter and potatoes Food prices have skyrocketed. The past year.
The government blames the high cost of living on sanctions imposed on Russia by “unfriendly” countries to escape war with Ukraine, during which the conflict caused labor and material shortages. , pushing up wages and production costs.
Russian President Vladimir Putin has ruled out exchanging “butter for guns” despite rising price pressures on the back of significant increases in defense spending and increased domestic arms production.
Russia's economy has managed to continue to grow during the war, thanks in large part to Russian oil and gas exports to a small number of countries willing to turn a blind eye to the conflict. The International Monetary Fund revised Russia's GDP upward in its autumn economic outlook, forecasting a growth rate of 3.6% in 2024.
Nevertheless, it pointed to an economic slowdown and predicted growth of 1.3% in 2025, reflecting “a slowdown in consumer spending and investment amid easing labor market tightness and slowing wage growth.” “This reflects a sharp deceleration,” he said.
“A crisis is underway”
The devaluation of the ruble comes as the Biden administration makes a final attempt to devalue it.Ile Pressure was applied to the Kremlin ahead of President-elect Donald Trump's inauguration in January.
The latest sanctions targeting Gazprombank, Russia's third-largest bank, are seen as particularly hurtful for Russia because it will prevent the financial institution from handling energy-related transactions that touch the U.S. financial system. The U.S. Treasury also accused the bank of acting as a conduit for Russia to purchase military supplies and pay salaries to Russian soldiers for its war effort against Ukraine.
Russian conscripts called for military service sit on a bus before leaving for their garrison in Bataisk, Rostov region, Russia, November 16, 2024.
Sergei Pivovarov | Reuters
The White House has been cautious so far in sanctioning the bank because it is also used to receive payments from European buyers of Russian natural gas, most of whom have lost their lives since the war began. Since then, it has been trying to significantly reduce its purchases of Russian gas.
“In recent months, we have seen tougher sanctions. [the Moscow stock exchange] MOEX, OFAC [the U.S.’ Office of Foreign Assets Control] Secondary sanctions, and now Gazprombank sanctions, are being cracked. As a result, foreign trade transactions are becoming increasingly difficult for Russia,” said BlueBay Asset Management's Asch.
Economists say there is no doubt that the war and Western measures designed to punish Russian aggression are beginning to have a real impact.
“Some would think that two years of sanctions are starting to take a toll on the Russian economy,” Joseph Brusuelas, chief economist at RSM US, said Wednesday as the ruble depreciated further.
Russia's economy appeared to be “an overheated economy struggling to support the war effort” [and] It exhausts resources,” he said in a comment. Posted in XHe said the central bank appears to have exhausted “unorthodox means to avoid the obvious endgame of suspending foreign currency purchases, which began today.”
“The central bank has ended foreign exchange purchases until the end of the year to reduce volatility in financial markets. The ruble has depreciated by 35% since August as inflation has hit the domestic economy hard.” [and] “As the Kremlin makes a fateful choice between guns and butter,” he warned observers, “symptoms of broader economic troubles as inflation soars and black market prices tell a very different story of the wartime economy.” I urged people to pay attention to this field to see if there are any.''It is on the verge of collapse. ”
Russian President Vladimir Putin speaks with Kremlin Spokesperson Dmitry Peskov during the summit of the Commonwealth of Independent States (CIS) member states in Moscow, Russia, October 8, 2024.
Sergei Ilnitsky | via Reuters
Russian officials were quick to downplay the ruble's rapid decline, one time Once again, sanctions are being blamed for the economic decline.
On Wednesday, Maxim Reshetnikov, head of Russia's Ministry of Economic Development, told reporters that the development of the ruble exchange rate is not determined by “fundamental factors.”
“The current exchange rate decline is not related to fundamental factors. We see a strong trade balance,” he said, according to a Google translation of the comments, which were reported by Google. This was reported by Russian news agency Interfax..
“The main factors behind the decline are the strength of the dollar against world currencies and… the backdrop of further tightening of sanctions against the Russian Federation,” he told reporters in Astana. “Furthermore, as is often the case in situations like this, there is currently an excess of emotion in the currency market. Experience has shown that rates always stabilize after a period of increased volatility. ”
