The Russian ruble has hit its lowest value against the U.S. dollar since the onset of the invasion of Ukraine, largely attributed to fresh U.S. sanctions and the ongoing difficulties of a wartime economy. On Wednesday, Russia’s central bank announced it would halt foreign currency purchases for the remainder of the year after the ruble fell past 110 rubles to the dollar—a one-third drop since early August. This move aimed to stabilize financial market volatility.
The ruble’s decline followed recent sanctions imposed on Gazprombank, Russia’s third-largest bank, and its foreign subsidiaries, which previously managed significant foreign currency transactions for natural gas exports. Until recently, sanctions had avoided targeting Russian gas due to Europe’s dependency on it, but now that European countries have secured alternative energy supplies, reliance on Russian gas has diminished.
The U.S. treasury and state departments have indicated that these new sanctions will impede the Kremlin’s ability to navigate existing sanctions and support its military efforts. In response to the sanctions, Dmitry Pyanov, deputy CEO of VTB, Russia’s second-largest bank, noted that the sanctions had greatly affected ruble transactions on the Moscow Exchange.
Anton Siluanov, Russia’s finance minister, conveyed at a financial conference that a weaker ruble could benefit exporters, hinting that the government might be accepting of this downward trend. Recent economic reports reveal that the economy, adjusted for war needs, is overheating, resulting in a significant exodus of workers.
Data indicates that real wages jumped by 8.4% in September compared to the previous year, unemployment dipped to a record low of 2.3% in October, and weekly inflation is nearing 0.4%. However, overall inflation has stubbornly remained around 8%, double the central bank’s target. Last month, the central bank raised the base interest rate to a historic high of 21% to combat inflation, but substantial government spending on military and labor issues has complicated these efforts.
Experts point out that the rising inflation could be exacerbated by the ruble’s decline, with projections suggesting that a 10% drop in the currency could add 0.5 percentage points to inflation. Economists have warned of potential stagflation—a combination of high inflation and low growth. With over a third of next year’s budget allocated to military spending, questions loom about the economic future post-conflict. If the war concludes, significant concerns arise over managing soldiers who have been paid substantial wages during the conflict. Russian oligarchs and business leaders have begun expressing dissatisfaction with the economic climate, suggesting that recovery may not be immediate.
