Russia’s ruble is depreciating against other currencies, undermining the Kremlin’s efforts to keep consumer inflation under control with one hand while fueling the economy and spending on the war against Ukraine with the other.
The central bank’s official exchange rate on Friday was set at 109 to the US dollar, meaning the ruble is worth more than a penny to the dollar. At that rate, the ruble was recovering from a low of around 114 to the dollar touched at the beginning of the week.
There was a similar decline against the Chinese yuan, which largely replaced dollars and euros in foreign trade after sanctions imposed by Ukraine’s Western allies cut Russia off from most of its dealings with Western companies and banks.
Russians interviewed on the street on Friday in Moscow – where bad language can lead to jail time – took the plunge.
Muscovite Yekaterina, who declined to give her last name, said she recently paid for a vacation in Egypt, adding “I’m afraid to know what the rest of the payment will be.” But he added: “Maybe it’s just a problem for us personally, people like to travel, but for the Russian economy it’s not that bad, the domestic industry is developing.”
Semyon, again no last name, was indifferent. “My salary is in rubles, I pay taxes in rubles, I buy a car in rubles and I buy groceries in rubles. Why do I want the dollar, explain that to me.”
The Kremlin is involved in a tricky juggle. Government spending on the war has factories running fast and the country’s economy is growing faster than many of those who have been sanctioned had expected. The subsequent rise in inflation – 8.5% for the year in October – has led the central bank to raise its benchmark interest rate to 21% to slow down borrowing and spending. This has led to complaints from business leaders over debt and has fueled speculation from economists that tight debt will ultimately slow the economy.
The President of Russia, Vladimir Putin, said that the current decline “is connected not only to the inflation process, it is connected to payments to the budget, it is related to oil prices, there are many seasonal factors.”
“So, in general, in my opinion, the situation is under control and there is no need to panic.”
The ruble and inflation, however, remain a major concern for the Kremlin, said Janis Kluge, an expert on the Russian economy at the German Institute for Security and International Affairs in Berlin.
“The inflation rate and the exchange rate, those two are very visible and you can feel it in your pocket,” he said. “And there is no propaganda in the world that will make sure that prices are not rising when prices are rising. That is why the Kremlin is worried and very focused on fighting inflation.”