Ruble Lost 25 Percent of Its Value, Kremlin Blames Loose Monetary Policy

The Russian ruble has fallen to a 16-month low against the dollar this month, with pressure on the currency, which is suffering under sanctions from Western countries, exacerbated by rising military spending and declining export revenues.

The Russian currency has lost about 25 percent of its value this year, trading below 99 rubles per dollar at the end of last week, and today that amount has exceeded 101 rubles for the US dollar. According to Hina, Putin’s economic advisor Maksim Oreshkin has reprimanded the central bank for this situation, blaming loose monetary policy for its weakening.

Oreshkin stated that the Kremlin wants a strong currency and expects a quick normalization because ‘the central bank has all the tools to normalize the situation in the near future and to ensure that borrowing rates are reduced to sustainable levels.’

Putin’s advisor also emphasized that a weak ruble complicates matters for entrepreneurs and negatively affects the real incomes of citizens.

– It is in the interest of the Russian economy to have a strong currency – said Oreshkin.

Let us recall that last year, after the start of the invasion of Ukraine, the ruble began to rise sharply, just like oil and gas prices, while in recent weeks the decline has accelerated, increasing economic pressure on Moscow after Western sanctions limited capital inflows, and Europe has weaned itself off Russian energy supplies.

Russia’s economy, on the other hand, has been boosted by state spending on defense and social obligations such as ‘funeral payments’ received by families of soldiers who died on the battlefield in Ukraine, but these payments have further increased the budget deficit and thus directly affected the decline in the value of the currency.

Import Increased by 20 Percent

Due to the sharp increase in consumption, there has also been a 20 percent increase in annual imports in the first half of this year.

– Imports have now returned to pre-war levels, but now we import all consumer and industrial goods from China, Turkey, Central Asia, and the Emirates, not from the West. You still have to pay for goods in some currency, but now no one wants rubles – said Vladimir Milov, former deputy minister of energy and now an opponent of the Kremlin, to the Financial Times.

Additional pressure on the currency has also come from the decline in interest rates last year, as the Russian central bank lowered its rate from 20 to 7.5 percent in less than a year. In July, interest rates were raised to 8.5 percent.

– State spending serves as a direct channel for increasing imports, just like loose monetary policy – stated Natalia Lavrova, a senior economist at the Russian company BCS Global Markets, as reported by FT.

Trade flows have become a driving force for the movement of the ruble after trading in that currency with foreign countries dried up last spring, and the Russian central bank blamed the sharp decline of the ruble this year on the shrinking current account surplus, which fell by 85 percent from January to July compared to last year.

The bank announced today that it does not see risks to financial stability due to the weakening of the ruble and signaled a possible new increase in interest rates. As reported by Hina, the Russian ruble was at a record 120 rubles per dollar in March last year, while before the war, it took about 75 rubles for a dollar.