The Kremlin’s top leadership is trying to cover up the ruble’s collapse. This rare public power struggle shows how precarious the Russian war economy is. Sputnik/Alexei Nikolskiy/Kremlin/Reuters
- The Kremlin’s top leadership is trying to cover up the ruble’s collapse.
- President Putin’s chief economic adviser blames central bank policy for the weak ruble.
- Central Bank of Russia Governor Elvira Nabiullina said the weak ruble was due to changing trade flows.
Russia’s economy is in such a mess that it seems as if the country’s top officials are being publicly pitted against one another.
The rare sign of discord came amid a slump in the ruble, which has fallen about 20% against the US dollar this year. The Russian currency hit a 16-month low against the greenback earlier this week.
One US dollar can now buy around 93 rubles, compared to around 74 rubles on January 1 of this year.
The plummeting ruble prompted Maxim Oreshkin, President Vladimir Putin’s top economic adviser, to crack down on Russia’s central bank in a column for state news agency TASS on Monday.
According to the TASS English report, Oreshkin blamed the central bank’s “soft monetary policy” for the weak ruble and advocated a strong currency.
“A weak ruble makes structural change in the economy more difficult and has a negative impact on real household incomes. A strong ruble is in the interests of the Russian economy,” Oreshkin wrote, according to the TASS translation.
A day later, Russia’s central bank raised interest rates by 350 basis points to 12% at an emergency meeting to support the ruble.
The recipient of these barbs is Russia’s central bank governor Elvira Nabiullina, who said the ruble’s decline was due to altered trade flows in and out of Russia due to sweeping sanctions, the Interfax news agency reported July 7. Russia’s export earnings have fallen due to trade restrictions over its invasion of Ukraine, with oil and gas earnings halving in the first half of the year.
The governor also criticized “conspiracies” that the ruble was “deliberately weakened to increase budget revenues,” according to a translation of her comments by the Moscow Times.
Nabiullina – who was highly respected among her peers – even likened criticism of Russia’s central bank to the street lamp effect, citing cognitive bias evident in the story of a drunk looking for his lost keys under a lamppost rather than where he’s lost her.
“Blaming the central bank is like finding a drunk – he looks for the guilty where the light is,” she said, as the Financial Times reported earlier this week.
This infighting and finger-pointing among top Kremlin leaders underscores the conundrum Putin’s government faces amid the protracted war in Ukraine.
“There is a tug-of-war going on in Russia between President Putin’s military ambitions on the one hand and the policy goals of the central bank and the Treasury on the other,” said Liam Peach, an economist at research firm Capital Economics, in an Aug. 15 note per RadioFreeEurope.
After all, the ruble’s plunge has hurt some in Russia — when a news ticker in Surgut, a Siberian oil town, openly called Putin “a moron and a thief,” FT Moscow bureau chief Max Seddon tweeted on Monday.
“100 rubles per dollar – you’ve lost your damn mind,” read Seddon’s translation of the news ticker in Surgut. The news agency that runs the ticker said the device was hacked.
To put some context on interest rates, the Central Bank of Russia raised the key interest rate to 20% in an emergency in late February 2022 after the country invaded Ukraine, causing wild turmoil in the markets.
But the institute had steadily cut interest rates through September 2022 to prop up the economy hit by the sanctions. The rate remained stable at 7.5% until it was raised to 8.5% last month.
The Kremlin, the Central Bank of Russia and Capital Economics did not immediately respond to insider requests for comment.
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