High military spending
The ruble plummets
08/14/2023 10:38 am
The Russian ruble has come under severe pressure following the country’s invasion of Ukraine. Over the year, the national currency has already lost around 30 percent against the dollar. Now the currency falls below a prominent mark.
Russia’s currency continues to fall: on the foreign exchange market there is now 100.35 rubles for one dollar. The rise in Russian military spending and the slump in export earnings are putting the currency under pressure, according to experts. The ruble has lost around 30 percent against the dollar over the year.
The government in Moscow is meanwhile confident. “The current exchange rate has deviated significantly from the fundamental values, and its normalization is expected in the near future,” the TASS news agency quoted an economic adviser to President Vladimir Putin as saying. However, a weak ruble makes structural change in the economy more difficult and has a negative impact on the real income of the population. “It is in the interests of the Russian economy to have a strong ruble,” he said.
The ruble came under heavy pressure when the country invaded Ukraine in February 2022, but a short time later it rose again significantly. But the attempts by the Russian central bank to support the national currency with interest rate hikes, restrictions on capital transactions and interventions are now largely in vain. Russia’s central bank raised interest rates in the summer for the first time since the invasion of Ukraine began. Surprisingly, it raised it sharply by a full point to 8.5 percent at the end of July.
The background: the inflation rate in July, at 4.3 percent, exceeded the 4.0 percent mark targeted by the central bank. The central bank expects it to end up at 5.0 to 6.5 percent this year and not return to the stability goal until 2024. The growing risk of inflation is accompanied by the weakness of the national currency, the ruble, which the central bank is fighting by selling foreign currency holdings.
Putin is giving the message that the country will weather this slump. The Russian leadership sees in the sanctions and the exodus of Western companies a historic opportunity to strengthen domestic companies, for products “Made in Russia” and to create new jobs in the country.