The ruble of Russia has plummeted to its weakest point against the U.S. dollar since the onset of its invasion of Ukraine, largely attributed to new sanctions imposed by the United States. This decline signals the ongoing challenges faced by Russia’s wartime economy. On Wednesday, the Central Bank of Russia announced it would halt foreign currency purchases for the remainder of the year after the ruble dropped beyond 110 to the dollar, marking a decrease of one-third since early August. The decision aims to stabilize the financial markets amid increased volatility.
The recent sanctions, which target Gazprombank—Russia’s third-largest bank—along with its foreign subsidiaries, have disrupted the flow of foreign currency into the Moscow Exchange, compounding the ruble’s struggles. This action follows earlier sanctions that largely exempted Russian gas due to Europe’s dependency on it; however, with Europe now securing alternative supplies, that dependency has significantly decreased.
U.S. officials indicated that these new measures would hinder the Kremlin’s ability to sidestep existing sanctions and support its military. Canadian and U.K. authorities had previously sanctioned Gazprombank as well. According to Dmitry Pyanov, deputy CEO of VTB, these sanctions have substantially affected the ruble’s role as a channel for foreign currency.
Anton Siluanov, Russia’s finance minister, expressed that a weaker ruble could be beneficial for exporters, hinting at a potential Kremlin strategy of allowing the currency to depreciate. Simultaneously, recent economic data reveals troubling trends: real wages rose by 8.4% in September, unemployment reached a historic low of 2.3% in October, and inflation remains stubbornly high at around 8%. The Central Bank raised its base interest rate to a record 21% last month in an effort to control inflation, complicated by significant government spending on military and labor force initiatives.
Experts warn that the ruble’s decline could exacerbate inflation, with central bank estimates suggesting that a 10% drop in currency value adds 0.5% to inflation rates. Economists have characterized the current economic climate as ‘stagflation,’ marked by high inflation coupled with low growth. Looking ahead, concerns mount over the long-term economic ramifications should the war conclude, with many questioning the fate of soldiers receiving substantial wages and the overall recovery of Russian businesses.
As the situation evolves, the interplay between sanctions, currency value, and economic stability remains a critical focus for both Russian officials and international observers.
