Rouble falls to 16-month low against dollar as Russian exports collapse
The rouble has fallen to its weakest point in almost 17 months as a collapse in export revenues and growing military spending increase pressure on Russia’s economy.
The currency, which has been steadily losing value in a long fall since the beginning of the year, slid past the psychologically key level of 100 to the dollar on Monday morning.
It has weakened 26% this year, making it the third-worst-performing global currency in 2023.
Russia’s central bank said on Monday said it was considering raising its key interest rate at its next scheduled meeting to stabilise inflation, but added that it saw no threat to the country’s financial stability from the rouble’s fall. The central bank blamed the slide in the value of the currency on a drop in export volumes and growing internal demand for imports.
The rouble has experienced a turbulent course since Russia invaded Ukraine in February 2021, dropping to a record low of 150 to the dollar two weeks after the start of the war before sharply recovering after the Russian central bank imposed strict capital controls that limited the flow of money out of the country.
By last summer the rouble had rebounded to a seven-year high as a spike in oil and gas prices, partly a result of the invasion, helped Russia raise export revenue as consumer imports fell.
Russian oil revenues have been drastically reduced sincesince western price caps and embargos were imposed, while imports have recovered. The government has also spent billions on the defence industry to continue the war in Ukraine, with many critical goods still coming from abroad.
The fall in the rouble accelerated after the aborted uprising in June by Yevgeny Prigozhin and his Wagner group of mercenary fighters caused Russians to move money into foreign accounts.
Dr Janis Kluge, a researcher who focuses on the Russian economy at the German Institute for International and Security Affairs, a thinktank, said: “The Russian rouble is still searching for its appropriate long-term war-sanctions exchange rate. Without capital controls, speculators would have priced in the poor outlook last year.”
A senior Kremlin aide on Monday admitted a weak rouble had a “negative effect” on the “population’s real incomes” but said Moscow expected the currency to bounce back shortly.
“The current exchange rate has deviated significantly from fundamental levels, and its normalisation is expected in the near future,” Vladimir Putin’s economic adviser Maxim Oreshkin said in an op-ed for the Tass news agency. “It is in the interests of the Russian economy to have a strong rouble.”
Last week, the Russian central bank took steps to stabilise the rouble, holding purchases of foreign currency until 2024 “to reduce volatility”. But the move did not immediately stop the currency’s decline, raising worries among Russian policymakers of the possibility of significantly higher consumer prices.
In the short term, a weaker rouble could help the authorities to fund its extensive war spending. Russia sells its oil in foreign currency and the current exchange will buy more roubles at home. A government document reviewed by Reuters this month showed that Moscow had doubled its 2023 defence spending target to more than $100bn (£79bn), a third of all public expenditure.
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But the sliding rouble could trigger memories in Moscow of the battering the currency took during the 1998 Russian financial crisis and has already led to rare public criticism of Russia’s central bank.
The influential TV host Vladimir Solovyov said last week: “The bloody central bank isn’t even explaining why the hell the rouble exchange rate has jumped so high that they’re laughing at us abroad, at our rouble being one of the three weakest currencies.”
“What is happening in this country!? How did this exchange rate come about? Eventually, this will lead to a rise in consumer prices, and it will coincide with the election campaign,” Solovyov added, referring to the Russian presidential election scheduled for March 2024.
The Kremlin has boasted about the country’s economic outlook while the central bank has predicted the economy will grow by up to 2.5% this year, despite crippling western sanctions.
Despite the weakening rouble, Russia’s statistics agency, Rosstat, announced last week that the economy grew year on year by 4.9% in the second quarter of 2023, the first increase in 12 months.
Experts said that much of the economic recovery was artificially driven by government spending on the war, raising the prospect of an economic slowdown if the conflict was halted.