The Russian rouble fell past the symbolic threshold of 100 to the dollar before recovering slightly in early trade on Tuesday, weighed down by foreign currency outflows and the country’s shrinking current account surplus. In August, the rouble’s last tumble into triple digits led the Bank of Russia to make an emergency 350-basis-point rate hike to 12%, and authorities discussed reintroducing controls to bolster the currency. The move was meant to curb capital outflows and protect the economy from a sharp fall in oil prices, which have lost nearly half of their value since the start of Russia’s invasion of Ukraine.
The rouble’s fall has made it more expensive for Russian companies to import goods and services, slowing economic growth and adding pressure on the budget. It also has eroded the incomes of workers who receive much of their pay in rubles, making it more expensive for the government to run pensions and public services. The rouble’s weakness is “an expression of the disconnect between what’s happening in Russia and what’s going on in the world,” said Sofia Kirsanova, an analyst with Raiffeisen Capital Markets.
As a result of Western sanctions imposed in response to Moscow’s war with Ukraine, oil production has slumped, and the nation’s foreign currency reserves have fallen. The ruble has been hit by those losses, as well as falling exports and shifting global trade flows that have exacerbated the decline.
Inflation has accelerated, with annual figures expected to exceed the central bank’s target of 4.5% this year. That’s a big jump from the rate of 3.2% in January and could exacerbate the weakening rouble as higher prices feed into consumer spending.
Some of the ruble’s recent weakness can be attributed to the impact of the war in Ukraine, which has increased military spending and made it more expensive for the Kremlin to buy weapons from abroad. However, the central bank says that other factors, including a loose monetary policy and falling commodity prices, have contributed to its deterioration.
Despite the heavy losses, some analysts say Russia is not on the brink of an economic collapse. The rouble’s slide “does not imply an underlying economic crisis,” said Chris Weafer, chief economist at Macro-Advisory Partners. The country still has enough foreign currency to cover debt repayments, and the volume of those payments is small compared with the overall size of Russia’s external debt.
But the weaker rouble does raise concerns about how Putin’s policies will affect future economic prospects. Some critics have accused him of making too many economic concessions to retaliate against the West, with the long-term impact of those moves being unclear. Others have warned that he could face political problems at home if the rouble continues to sag, further adding to the risks of an economic meltdown. Some experts say that a weaker rouble makes it harder for him to implement reforms and will erode his popularity among the public.
