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The ruble fell below 100 per dollar on Tuesday, frustrating efforts by Russian authorities to prevent a sharp decline in the currency’s value this year and pushing it closer to levels hit in August.
Since Moscow launched a full-scale invasion of Ukraine in February 2022, the Russian currency has lost nearly a quarter of its value as Western sanctions have hit export revenues and widened the country’s budget deficit.
The ruble last topped 100 in August, alarming state media and forcing the central bank to urgently raise interest rates by 3.5 percentage points. A further 1 percentage point interest rate hike – to 13% – and discussions of capital controls failed to prevent the yuan from depreciating.
The Kremlin has tried to shrug off the fall in the ruble’s value, saying it is a fact of life.
“There are certain fluctuations. We live in a ruble zone, so from an emotional point of view, excessive focus on the dollar exchange rate may occur, but this is essentially a thing of the past,” Kremlin spokesman Dmitry Peskov told reporters on Tuesday.
“We need to get used to living in the ruble zone and not be too dependent on the dollar exchange rate,” he added, according to Interfax news agency. “There is no reason to panic.”
Analysts said the latest losses were due to the end of a favorable month-end tax period, which prompted exporters to convert foreign currency earnings into paying local debt and tended to support the currency temporarily.
A ban on diesel and gasoline exports imposed by Moscow in September in response to rising Russian energy prices led to lower foreign exchange inflows and also weighed on the ruble.
“Demand for foreign currency in Russia remains much higher than supply,” said Natalia Lavrova, chief economist at BCS Global Markets. “Businesses need the currency to import and purchase assets from foreign companies that want to exit the Russian market, while foreign currency serves as a savings tool for consumers. Still attractive.”
Currency depreciation makes imported products more expensive, increasing inflation. The 100-ruble threshold to the dollar holds special psychological importance for Russian consumers. A breach of that level in August sparked a rare public disagreement among senior Russian officials, while one news organization said its shares had been hacked after showing an insulting message to Russian President Vladimir Putin.
The ruble’s current slide comes at a time when policymakers are particularly sensitive to public opinion, as Putin is widely expected to announce his candidacy in next year’s presidential election soon.
Putin expressed concern last month about the impact of a weak ruble on the country’s inflation levels. “Obviously, one of the main issues right now is accelerating inflation,” he said.
“The main factor here is clear – the depreciation of the ruble, and it is necessary to understand the reasons behind it and take appropriate decisions immediately.”
The government is discussing further measures to halt the ruble’s decline, including various forms of capital controls, such as restrictions on bank transfers abroad or the creation of a “Chinese-style silo” between the ruble’s onshore and offshore markets, as proposed by the Ministry of Economic Development in late September That way.
If passed, the proposals would mark Russia’s first tightening of currency controls in the weeks since Putin ordered a sweeping invasion of Ukraine and signal growing concerns about the country’s economic future.
In 2014, the central bank switched from a currency-targeted policy to one focused on inflation and opposed the proposal. But its own means of limiting the depreciation of the ruble are limited.
The Ministry of Economic Development’s forecasts, which form the basis of the country’s budget, are expected to rebound to an average of 90.1 rubles against the dollar in 2024, according to the latest forecasts released last month. Most Russian market analysts and economists expect the exchange rate to be between 89 and 105 rupees per dollar.
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