After touching 17-month low, will Russian central bank save the ruble?

As Moscow raised military spending and Western sanctions put pressure on its energy exports, the value of the Russian currency dropped to its lowest level since the early days of the Ukraine conflict.

As a result, the Russian central bank announced that it will hold an emergency meeting to review its benchmark interest rate, increasing the probability that borrowing rates would rise and support the weakening currency. The ruble has weakened to 101 to the dollar, continuing a drop of more than 25% since the year’s beginning and reaching its lowest point in nearly 17 months.

Maksim Oreshkin, the economic advisor to President Vladimir Putin, attributed the weak currency on “loose monetary policy.” Oreshkin asserted that the Russian central bank has “all the tools necessary” to restore order and predicted that things will soon return to normal.

A floating exchange rate is maintained by the bank because it enables the economy to adjust to shifting external conditions. According to analysts, higher defence spending is to blame for the depreciation of the ruble as well as rising imports and declining exports, particularly in the oil and natural gas industry.

The Russian economy is currently operating under a number of governmental orders relating to the conflict, which raises the possibility of inflation getting worse. The central bank declared it will stop purchasing foreign currency on the domestic market until the end of the year in order to support the ruble and limit volatility in an effort to assist lessen that possibility.

The next gathering to talk about Russia’s benchmark interest rate is scheduled for September 15. Some Russians in Moscow seem worried about the declining value of the ruble, claiming that as costs rise, the standard of living would decline. Some people still hold out hope that the ruble’s decline is only transitory and that it will stabilize.

The ruble traded at approximately 66 to the dollar in January 2023, but in the months that followed, it lost roughly a third of its value. The ruble fell as low as 130 to the dollar in February 2022 when Western nations imposed sanctions on the invasion of Ukraine, but the central bank implemented capital restrictions that stabilized its value.

It was in the 50–60 range to the dollar by last summer. Friday rumours that capital flight out of Russia was also a factor in the decline of the ruble have been disputed, claiming they were “not substantiated.”