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From Moscow with concern: the russian ruble and the battle against depreciation



In the vast landscape of global finance, few currencies have faced as tumultuous a journey as the Russian ruble in recent times. The currency’s recent plunge, crossing the symbolic 100 mark against the US dollar, has not only sent shockwaves through international markets. But has also spotlighted the intricate web of challenges that Russia grapples with in its quest to stabilize its national currency.

The backdrop to this financial drama is painted with broad geopolitical strokes. The aggressive stance taken by Moscow in February 2022, marked by its full-throttle offensive against Ukraine, has had repercussions that extend far beyond the military realm. The international community, led predominantly by Western powers, responded with a slew of sanctions. These punitive measures have taken a toll on Russia’s economic lifelines, most notably its export revenues. The result? A ballooning budget deficit that casts a long shadow over the nation’s fiscal health.

The Central Bank of Russia, the sentinel of the nation’s monetary policy, has not been a mere spectator in this unfolding saga. In a bid to arrest the ruble’s freefall, the bank took the drastic step of hiking interest rates, first with a substantial 3.5 percentage point jump in August, followed by another increase, pushing the rate to 13%. Yet, the ruble’s descent seems unyielding, proving resistant to even discussions of capital controls, a tool often seen as a last resort in currency stabilization.

Ruble: how Kremlin is trying to minimize the fall

Dmitry Peskov, the voice of the Kremlin, has presented a stoic front in the face of this economic storm. Advocating for a shift in perspective, he suggests that Russia should embrace the “ruble zone”, diminishing its dependency on the dollar’s oscillations. However, beneath this veneer of resilience lies an undeniable truth: the depreciating ruble is more than just numbers on a screen. It signifies eroding purchasing power, increased import costs, and a daily life that becomes progressively more expensive for the average Russian citizen.

Financial analysts, with their fingers perennially on the pulse of the market, attribute the ruble’s recent woes to a combination of factors. The end-of-month fiscal period typically sees a surge in demand for the ruble, as exporters convert their foreign earnings to meet local obligations. This natural cycle offers a brief respite for the beleaguered currency. However, Moscow’s decision to impose an embargo on diesel and gasoline exports in September threw a spanner in the works, curtailing the influx of foreign currency and exacerbating the ruble’s plight.

The economic machinery of Russia is currently caught in a paradox. On one hand, there’s a voracious appetite for foreign currency, driven by businesses that rely on imports and seek to acquire assets from foreign entities exiting the Russian market. On the other, the supply of this much-coveted currency is dwindling. This disparity has elevated foreign currency to a prized asset, not just for businesses, but also for everyday consumers looking to safeguard their savings.

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