Russia’s ruble is sagging against other currencies, complicating the Kremlin’s efforts to keep consumer inflation under control with one hand even as it overheats the economy with spending on the war against Ukraine with the other.
The official central bank rate for Friday was set at 109 to the U.S. dollar, meaning the ruble is worth less than a penny in dollar terms. At that rate, the ruble was bouncing back from lows around 114 to the dollar touched earlier in the week.
There have been similar declines against the Chinese yuan, which has largely replaced dollars and euros for foreign trade after sanctions imposed by Ukraine’s Western allies cut Russia off from most dealings with Western companies and banks.
Russians interviewed on the street Friday in Moscow – where incautious remarks can lead to jail time – took the decline in stride.
Muscovite Yekaterina, who declined to offer her last name, said she had just made a prepayment for a vacation in Egypt, adding “I’m afraid to know what the rest of payment will be.” But she added: “Maybe it only concerns us individually, people who love travelling. But for Russian economy it’s not that bad. Internal tourism, domestic industry are developing.”
Semyon, again no last name, was even less concerned. “My salary is in rubles, I pay taxes in rubles, I buy a car in rubles and buy groceries in rubles. What do I need the dollar for, explain that to me, please.”
The Kremlin is engaged in a tricky juggle. Government spending on the war has factories running at top speed and the economy growing more strongly than many expected given sanctions. The resulting inflation – an annual 8.5% in October – has led the central bank to crank up its interest rate benchmark to a painful 21% to slow borrowing and spending. That has led to complaints from business leaders hit with high credit costs and fostered predictions from economists that tight credit will eventually slow the economy.
Russian President Vladimir Putin said that the recent decline was “connected not only with inflation processes, it is also connected with payments to the budget, it is connected with oil prices, there are many factors of a seasonal nature.”
“Therefore, in general, in my opinion, the situation is under control and there are certainly no grounds for panic.”
The ruble and inflation nonetheless remain key 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 rate and the exchange rate, those two are very visible and you can feel it in your pocket,” he said. “And there is no propaganda in the world that will convince you prices are not rising when prices are rising. So this is why the Kremlin is so sensitive and really prioritizes fighting inflation so much.”