After Russia’s ruble hit a 16-month low against the U.S. dollar, raising fears of rising inflation, even one of President Vladimir V. Putin’s top cheerleaders in state media lashed out at the country’s financial authorities on Thursday over an exchange rate that he said was a subject of global mockery.
The Russian central bank took measures on Thursday to stabilize the currency, amid the latest squall of financial volatility unleashed by Mr. Putin’s war against Ukraine. This time, the challenges are seen in both a struggling ruble that is fueling inflation, but also in government budget deficits that raise concerns about the sustainability of Russia’s intense spending on the war.
The weakening ruble neared an exchange rate of 100 per U.S. dollar earlier this week, down by roughly 25 percent since the start of the year. The decline prompted the Bank of Russia on Thursday to halt purchases of foreign currency for the remainder of the year “to reduce volatility.”
The central bank’s move should help shore up the ruble, because when the bank spends rubles to buy foreign currency, it increases the supply of rubles in circulation, lowering their value. The ruble was roughly flat in trading on Thursday.
But the events demonstrate how Russia’s dramatically changing economy is challenging Moscow’s financial policymakers, who have nimbly reacted to wartime shocks but still face longer-term dilemmas. Yawning deficits, coupled with exports that are increasingly crimped by sanctions, have disrupted Russia’s economic equilibrium.
The central bank has forecast inflation between 5 and 6.5 percent this year. Official data released on Wednesday showed the annual rate of inflation accelerating to 4.3 percent in July.
“The ruble exchange rate is only an indicator,” said Alexandra Prokopenko, a nonresident scholar at the Carnegie Russia Eurasia Center and a former Russian central bank official. “It is screaming that the economy is very badly balanced, that it’s not functioning properly — and do something, because later on it will be worse.”
How much the Bank of Russia’s move on Thursday will bolster the ruble is unclear.
“It helps, but it’s not a game changer,” said Janis Kluge, a researcher who focuses on the Russian economy at the German Institute for International and Security Affairs. “What is more important is what happens to commodity prices and how fiscal spending evolves over the next few months.”
Russia has been on an economic roller coaster since Mr. Putin launched his invasion of Ukraine in late February of last year.
An onslaught of Western sanctions and a dramatic exodus of capital and assets pushed the country into crisis in the initial aftermath of the invasion. The ruble plummeted from 76 per dollar a week before the invasion to as low as 135 the following month. The central bank took a series of dramatic measures, including strictly limiting the flow of money out of the country, to stave off a full-blown…
2023-08-10 16:41:54
Article from www.nytimes.com