Russia’s apex bank to meet amid ruble plunge

The Russian ruble experienced a sharp decline on Monday, reaching its lowest value since the early stages of the conflict in Ukraine. The depreciation comes amid heightened military expenditures by Moscow and the impact of Western sanctions on its energy exports.

This situation prompted the Russian central bank to schedule an emergency meeting for Tuesday to review its key interest rate. The likelihood of an interest rate increase, aimed at providing support to the struggling ruble, has risen.

The value of the Russian ruble had crossed the threshold of 101 rubles to the dollar, marking a decline of more than one-third since the year’s start. This brought the ruble to its lowest point in almost 17 months, though it did show a minor recovery following the central bank’s announcement.

The decision to convene the meeting came after Maksim Oreshkin, an economic adviser to President Vladimir Putin, attributed the weakened ruble to “loose monetary policy.” Oreshkin emphasised that a strong ruble is advantageous for the Russian economy, and he expressed expectations of normalisation soon.

Increased defence spending leading to higher imports and reduced exports, particularly in the oil and natural gas sector, are identified as key factors contributing to the ruble’s decline. A shift toward a war economy also raises concerns about potential inflation.

To counter this situation, the central bank recently announced its decision to halt the purchase of foreign currency on the domestic market until the year’s end, aiming to stabilise the ruble and decrease volatility. Normally, Russia sells foreign currency to offset revenue shortfalls from energy exports and buys currency during surpluses.

An earlier substantial increase of 1 percent in the key interest rate was implemented by the central bank, citing rising inflation and the ruble’s decline as risk factors. The next discussion regarding Russia’s key interest rate is planned for September 15.

Some individuals in Moscow expressed concerns about the weakening ruble, expecting a decrease in their standard of living due to anticipated price increases. However, others held onto the hope that the ruble’s fall would be temporary and that it would eventually stabilise.

From its January value of about 66 to the dollar, the ruble had lost approximately one-third of its value in the subsequent months. After Western nations imposed sanctions following the invasion of Ukraine in February 2022, the ruble had plummeted to as low as 130 to the dollar. However, the central bank’s implementation of capital controls managed to stabilise its value. By the summer of the following year, it had settled in the range of 50 to 60 to the dollar.

Deputy Director Alexei Zabotkin dismissed suggestions that capital flight from Russia was also contributing to the ruble’s decline, stating that such claims were not supported by evidence.