The Russian ruble is falling against other currencies, complicating the Kremlin’s efforts to control consumer inflation while on the other hand overheating the economy by spending on the war against Ukraine.
The central bank’s official interest rate for Friday was set at 109 per U.S. dollar, meaning the ruble is worth less than a cent in dollar terms. At that pace, the ruble bounced back from a low around 114 to the dollar reached earlier this week.
There have been similar declines against China’s yuan, which has largely replaced dollars and euros for foreign trade after sanctions imposed by Ukraine’s Western allies cut Russia off from most transactions with Western companies and banks.
Russians interviewed on the streets of Moscow on Friday – where imprudent comments can lead to jail time – took the decline in stride.
Muscovite Yekaterina, who declined to reveal her surname, said she had just made an advance payment for a holiday in Egypt, adding: “I’m afraid to know what the rest of the payment will be.” But she added: “Maybe it only concerns us individually, people who love to travel. But it is not so bad for the Russian economy that internal tourism and domestic industry are developing.”
Semyon, again without a surname, was even less concerned. “My salary is in rubles, I pay taxes in rubles, I buy a car in rubles and groceries in rubles. What do I need the dollar for, explain it to me, please.”
The Kremlin is embroiled in a difficult puzzle. Government spending on the war is keeping factories running at top speed and the economy growing faster than many expected given the sanctions. The resulting inflation – an annual 8.5% in October – has prompted the central bank to raise its interest rate benchmark to a painful 21% to slow lending and spending. That has led to complaints from business leaders facing high credit costs and to predictions from economists that tight credit will ultimately slow the economy.
Russian President Vladimir Putin said the recent decline was “related not only to inflation processes, but also to budget payments, to oil prices and to many factors of a seasonal nature.”
“Therefore, in my opinion, the situation is generally under control and there is certainly no reason to panic.”
Nevertheless, the ruble and inflation remain major concerns 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 and the exchange rate, those two are very visible and you feel it in your pocket,” he said. “And there is no propaganda in the world that will convince you that when prices rise, prices don’t rise. That is why the Kremlin is so sensitive and really gives so much priority to fighting inflation.”
