Russia tries to stem panic over a falling ruble, as the central bank is forced to intervene

Russian officials are trying to contain panic over the ruble’s sharp fall this week, forcing the central bank to intervene on Wednesday to support the currency.

gave Ruble The greenback weakened to 114 on Wednesday, its lowest level since March 2022, shortly after Russia invaded Ukraine.

The Central Bank of Russia (CBR) was forced to intervene that day to support the ruble. is saying It will freeze foreign purchases in the domestic currency market for the rest of the year “to reduce the volatility of financial markets.”

After the intervention, the ruble was trading at 110 to the dollar on Thursday morning.

Russian President Vladimir Putin earlier commented on the situation, saying there was “no need to panic” about the ruble’s devaluation and that the currency’s volatility was linked to budget payments and climate change, state news agency RIA Novosti reported. In the comments of the news agency Tass and translated. Reuters.

Kremlin spokesman Dmitry Peskov also denied the reduction, telling a reporter This will not affect ordinary Russians as they receive their salaries in rubles.According to a Google-translated report from Russian media.

Close followers of Russian geopolitics and macroeconomics say the ruble’s weakness points to Moscow’s rapidly deteriorating economic situation.

Describing the ruble as “in free fall,” Timothy Ash, emerging markets strategist at Blue Bay Asset Management, said it looks like “a proper currency crisis is brewing in Russia.”

“A weaker ruble means higher inflation, a higher CBR policy rate in response and lower real GDP growth as a result,” Ash said in emailed comments.

The reason for the fall of the ruble is partly explained. A raft of new US sanctions against Russia’s Gazprombank Those announced by the White House last week, along with a war-torn domestic economy, have driven inflation to rocket.

The central bank has already raised interest rates to 21 per cent, but it has so far been unable to contain soaring prices, with inflation at 8.5 per cent in October, while staples such as butter and potatoes The prices have increased more than that. last year.

The government has blamed the high cost of living on sanctions imposed on Russia by “unfriendly” countries in an effort to withdraw from its war on Ukraine, while the conflict is causing labor and supply shortages. And wages and production costs have increased.

Russian President Vladimir Putin has ruled out a “gun-for-butter” swap, despite rising cost pressures amid massively increased defense spending and rising domestic arms production.

Russia’s economy still managed to grow during the war, largely thanks to Russian oil and gas exports to a handful of countries willing to turn a blind eye to the conflict. The International Monetary Fund has revised its GDP forecast for Russia upward in its fall economic outlook, now predicting growth of 3.6 percent in 2024.

It nevertheless noted the economic slowdown, forecasting growth of 1.3 percent in 2025 and saying it “reflects a sharp slowdown … as private consumption and private consumption between a tight labor market and low wage growth. Investment is slow.”

The White House was previously wary of approving the bank, as it is also used to receive payments from European buyers of Russian natural gas — but most of those customers have bought their Russian gas since the war began. Tried to cut down on purchases.

“For a few months now we’ve seen strict restrictions – restrictions continue. [the Moscow stock exchange] MOEX, OFAC [the U.S.’ Office of Foreign Assets Control] Cracking the whip around secondary sanctions and now the Gazprombank sanctions. As a result, foreign trade transactions are becoming increasingly difficult for Russia,” noted Blue Bay Asset Management’s Ash.

Economists say there is no doubt that the war, and the Western measures designed to punish Russia for its aggression, are really starting to hit home.

“One would think that two years of sanctions are wreaking havoc on the Russian economy,” RSMUS chief economist Joseph Brusillas commented on Wednesday, as the ruble fell further.

Russia’s economy appears to be “an overheated economy struggling to support its war effort. [and] exhausts its resources,” he said in comments Posted on X.noting that the central bank has taken “unconventional steps to avoid the obvious endgame in which it stops buying foreign currencies, which started today.”

“The central bank has ended foreign FX purchases until the end of the year in an effort to reduce financial market volatility. The ruble is down 35 percent since August as inflation ravages the domestic economy. [and] As the Kremlin makes an ominous choice of guns versus butter, he urges observers to “watch this space for signs of broader economic problems.” Watch as inflation rises and black market prices tell a very different story of the wartime economy on the brink of.”

Russian authorities have been quick to downplay the ruble’s sharp weakness. once Again, sanctions were blamed for the decline.

On Wednesday, Maxim Reshetinkov, head of Russia’s Ministry of Economic Development, told reporters that the ruble’s exchange rate dynamics are not determined by “fundamental factors.”

“The current weakness in the exchange rate is not related to fundamentals, we see that the trade balance is strong,” he said, according to comments translated by Google. Russian news agency Interfax reported this..

“The main factors behind the weakness are the strengthening of the dollar against global currencies and … a backdrop of further tightening of sanctions against the Russian Federation,” he told reporters in Astana. “Furthermore, as is often the case in such situations, there is currently an overly emotional component in the currency market.