In a bid to combat red-hot inflation, Russia’s central bank halted all foreign currency purchases for the rest of the year while actively selling the Chinese yuan in a bid to boost the ruble. The ruble — now worth a fraction of a cent — hit lows on Wednesday not seen since the start of the war in Ukraine.
The aim is to put a floor under the ruble and reduce further price pressures coming into the country due to the rising cost of imported goods. Russia’s economy is also suffering from a lack of foreign investment due to Western government sanctions banning companies from doing business with Russia. With most Russian financial institutions cut off from trading in dollars, this starves the country of a constant supply of US currency reserves.
“This decision is aimed at reducing the volatility of financial markets,” the Bank of Russia said Wednesday.
Official inflation rates hit a year-on-year peak above 9 percent Augustand keep going up. Russian political scientist Kirill Rogov believes these figures underestimate the problem and may represent the true rates materially higherReferring to data from Raiffeisen Bank the analysts and market research company ROMIR.
The central bank’s announcement came a week after U.S. Govt impose New economic sanctions against Gazprombank. The bank was previously exempt because it plays a vital role in enabling the export of natural gas to a handful of American allies in Europe by processing cross-border payments.
On Wednesday, the ruble fell below 114 to the dollar, the lowest level since early March 2022. Moscow daily. Rossiyskaya Gazeta called It’s a “panic attack for Russia’s currency market.”
Finance Minister Anton Siluanov said the drop will benefit exporters, as their goods are suddenly much cheaper for foreigners to buy. But the danger is that the weak ruble will end up importing inflation from abroad by raising the prices of imported foreign goods.
Russia has raised interest rates not seen in 20 years
Inflation began to rise in Russia after President Vladimir Putin took over hundreds of thousands men of working age to fight in the Ukraine and enlisted Russian industry to support its military goals. With fewer workers, wages in the civilian economy rose significantly. The increase in labor prices was quickly passed on to consumers as supply struggled to keep up with domestic demand.
“Unemployment has never been as low as 2.4 percent,” central bank governor Elvira Nabiullina told lawmakers in Russia’s Duma. at the beginning of this month. “We are now in unprecedented territory where almost every production facility is operating at full capacity.”
Consumer prices are rising. The price of a staple like potatoes almost double since last December. Butter today expensive stores have closed the supply prevent theft. Also mortgage loans he went up after the government stopped giving generous subsidies to buy a house or a home in July.
“Inflation has been incredibly high for the fourth year in a row,” Nabiullina told the lawmakers, and “almost everything is becoming more expensive: raw materials, components, logistics, equipment, labor.”
His institution’s response to these pressures has been to raise the main interest rate by two full percentage points to 21% in October. A level not seen since 2003.
However, this has not been enough to cool inflation or stop the continuous decline of the ruble. This has driven RBK Russian business daily the defender on wednesday, benchmark rates are raised by 30-40% to support the currency, although this risks slowing growth.
A cure for high rates that is more harmful than the disease of inflation
Not everyone agrees. Alexey Mordashov, chairman of Severstal, a supplier of steel needed for the war, said high borrowing rates were already painful; worse, he argued, they achieved relatively little.
“This is an unprecedented situation in modern world history, when the central bank is 2.5 times higher than inflation and still not slowing down,” Mordashov said. mentioned according to Political as said on wednesday. “It’s as if the medicine is more harmful than the disease.”
Russia’s struggle to keep a lid on consumer prices could give the Trump administration more leverage to force Moscow to the negotiating table.
On Wednesday, his transition team designated Keith Kellogg as special envoy for Ukraine and Russia. The retired general last week welcomed the Biden administration’s approval of Ukraine’s use of long-range ATACMS missiles against Russian targets in response to North Korea’s troop deployment, saying the decision should have come much sooner.
“Basically, we’ve gone back on letting Zelensky fight a war he should have fought a long time ago,” he said. say the fox the news “They should have done that a year ago.”
Russia responded to the latest escalation by launching the MIRV experimental intermediate-range ballistic missile for the first time.Oreshnik” capable of being armed with multiple nuclear warheads. It has led to fears that the conflict could escalate third world war Before Trump took office in January.
