Russians are bracing for higher prices as the rouble falls against both the dollar and the euro. Russia’s Central Bank announced it will hold an extraordinary meeting on Tuesday after the rouble reached its lowest value in almost 17 months on Monday morning. As Moscow increases military spending and Western sanctions weigh on its energy exports, the currency dropped below the psychologically important level of 100 to the US dollar. However, it did rise back to above the mark after the bank’s announcement it would review its key interest rate, raising the likelihood of an increase in borrowing costs that would support the flagging rouble.
The decision to convene the session came after Maksim Oreshkin, an economic advisor to President Vladimir Putin, attributed the feeble rouble to a “lax monetary policy” in a Monday op-ed for the state news agency Tass.
Oreshkin contended that a robust rouble aligns with the Russian economy’s interests and cautioned that a feeble currency “complicates economic restructuring and exerts negative pressure on individuals’ actual incomes.”
Financial analysts indicate that the currency’s depreciation is propelled by amplified defense expenditures and dwindling exports, particularly within the oil and natural gas sphere.
With increased imports and decreased exports, a reduced trade surplus typically burdens a nation’s currency.
“The underlying catalyst is a structural shift in the Russian economic landscape,” remarked Alexandra Prokopenko, a non-resident scholar at the Carnegie Russia Eurasia Centre and a former official of the Russian Central Bank.
“Current demand is propelled by state outlays within an expanded military-industrial complex. This encompasses not only enterprises devoted to warfare but also a substantial segment of the civilian sector.”
She underscored that steering the entire economy towards a war footing not only inflates imports but also introduces the possibility of heightened inflation.
In an effort to mitigate this scenario, the Central Bank proclaimed last week its intention to cease purchasing foreign currency on the domestic market until year-end, in a bid to stabilize the rouble and mitigate volatility.
Certain Moscow residents expressed concern on Monday regarding the weakening currency.
“Prices will surge, resulting in a decline in living standards. The standards have already diminished and are poised to diminish further — more people will undoubtedly experience financial hardship,” voiced retired educator Vladimir Bessosedny.
Conversely, others remained optimistic that the rouble’s decline is transient and will eventually stabilize.
