Comment on this story
Russia’s ruble fell to a 17-month low on Monday, briefly slipping above 102 against the dollar, prompting the country’s central bank to call an extraordinary meeting on Tuesday to discuss its interest rate level.
The ruble has lost about a quarter of its value against the dollar since Russia invaded Ukraine last year. Western sanctions have hurt Russia’s trade balance and military spending has soared as the Kremlin’s lightning offensive, originally planned, turned into a grueling battle of attrition with no end in sight.
Russia’s central bank said on Monday that the sudden drop in value would not threaten the country’s overall financial stability, blaming the drop on increased demand for imports as well as falling exports.
“The main reason for the weakening of the ruble and the acceleration of inflation is loose monetary policy,” Maxim Oreshkin, economic adviser to Russian President Vladimir Putin, wrote in an op-ed for the TASS news agency. “The central bank has all the tools to normalize the situation in the near future.”
A budget deficit and severe labor shortages have also contributed to rising inflation. More than 40 percent of Russian industrial firms reported labor shortages last month, according to a recent survey — accelerating a trend that has been accelerating since September, when Putin launched a nationwide military mobilization to bolster Russian forces in Ukraine.
Economic analysts assume that the recent mutiny led by Wagner boss Yevgeny Prigozhin and rumors of a new wave of mobilization could also be responsible for the depreciation.
The ruble slipped above 102 on Monday, down 30 percent year-to-date, before strengthening slightly later in the day, rising to 98.5 against the dollar.
Oleg Itskhoki, a professor of economics at UCLA, said the new decline is part of a “permanent depreciation and acceleration trend” rather than a spontaneous crisis.
“Perhaps the current acceleration will result in a tsunami devaluation, but that hasn’t happened in the past,” Itskhoki said. “So it’s not very likely, if not impossible, unless it triggers panic among the general public and a mass shift of savings from rubles to dollars.”
Although Russia still has a fairly large trade surplus, Itskhoki said it was not enough to offset capital flight and stabilize the exchange rate. And default adjustments in fiscal policies are proving insufficient.
There is “not much” the central bank can do, Itskhoki added, except reintroduce the kind of financial restrictions it introduced at the start of the war. Last week the central bank announced that it would end foreign exchange purchases by the end of the year.
“Now is also a good time for the West to tighten financial and export sanctions to limit fiscal space for current and future Russian war efforts in Ukraine and elsewhere,” he said.
In Ukraine, officials from the Black Sea port city of Odessa said Russia launched three waves of drone and rocket attacks on Monday. While all 15 drones and eight missiles were shot down, the debris caused extensive damage to a supermarket, an apartment building and a school, officials said. According to the regional governor, three employees of the supermarket were injured.
Odessa has been the focus of Russian attacks since last month, when Putin canceled a United Nations-brokered deal that allowed grain exports along the Black Sea. Targeting the city center and grain storage facilities on the Danube River – a key alternative route for export following the collapse of the Black Sea Agreement – Russian attacks this month appeared aimed at crippling the country’s agricultural sector. Before the Russian invasion, agriculture accounted for about 20 percent of Ukraine’s economy.
President Volodymyr Zelenskyy also visited a command post of one of the brigades stationed near the besieged eastern Ukrainian city of Bakhmut on Monday.
Ukraine’s Deputy Defense Minister Hanna Maliar claimed advances around Bakhmut’s flanks and said Kiev forces had recaptured about a square mile as part of Ukraine’s slow-moving counteroffensive last week. She added that Russia remains on the offensive in the north, near the cities of Kupyansk and Lyman, which Ukrainian troops liberated last fall.
The Biden administration on Monday announced an additional military aid package to “meet Ukraine’s critical security and defense needs.” This is the 44th tranche of equipment delivered to Kiev since August 2021. The $200 million package includes additional Patriot and HIMARS air defense ammunition, artillery and tank ammunition, anti-tank weapons and mine clearance systems.
Ebel reported from Tunis and Khurshudyan from Kiev.
Understanding the Russia-Ukraine conflict
Check out 3 more stories
Comments are closed.