The day after a spectacular interest rate hike, and with the ruble still at an all-time low, the Russian authorities opted for the status quo. On Wednesday, August 16, President Vladimir Putin received members of the government and the representative of the Russian Central Bank, Elvira Nabiullina, to discuss ways of stemming the fall of the national currency.
As a sign of the sensitivity of the issue, no press release was issued after the meeting. But the business daily Vedomosti reported on Thursday morning that the participants had shelved the most radical measure – advocated by Finance Minister Anton Siluanov – of forcing exporting companies to convert almost all their export earnings into rubles within 90 days. Such a measure, which would reinforce already strict controls on capital movements, was apparently deemed too great a risk to the smooth running of the economy.
The central bank's decision on Monday to raise interest rates from 8.5% to 12% only offered a respite for the currency. The exchange rate has already fallen below the psychological and symbolic 100 rubles to the dollar mark, which reminds Russians of the hardest crises of the last 30 years. On Wednesday evening, the currency was trading at 94.67 rubles to the dollar and 103.2 rubles to the euro.
But the general consensus, particularly among analysts at Alfa Bank, is that higher rates will not be enough to reverse the downtrend. Since the beginning of the year, the ruble has been steadily depreciating. It has lost almost 25% against the dollar, putting it in the same category as the Turkish lira and the Argentine peso.
For the federal budget, strained by the conflict in Ukraine, a weak ruble helps reduce the cost of the war effort. And for several months, the government refrained from any serious intervention. Nevertheless, the risk of inflation is now too great. Prices have risen by 7.6% over the last three months, and analysts predict that prices of basic necessities will continue to rise.
The risk is also political: in his TV show on August 10, propagandist Vladimir Soloviev warned of the dangers of unbridled inflation during Putin's re-election campaign in March 2024. He also spoke of a "subject of international mockery."
The tumbling ruble is also symptomatic of the imbalances in the Russian economy, which "is not functioning properly," Alexandra Prokopenko, a former official of the Russian Central Bank, now in exile, wrote on X (formerly Twitter). The state of the economy is the exact opposite of what it was a year ago. Back then, high revenues from hydrocarbon sales and low imports contributed to a strong ruble in addition to the draconian controls on capital movements.
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