The Russian currency, the ruble, has plunged to its lowest rate against the U.S. dollar since the start of Vladimir Putin’s full-scale invasion of Ukraine as sanctions continue to hurt his country’s economy.
After two months of depreciation, the ruble dropped on Tuesday to 107 against the dollar for the first time since March 2022, just after the start of the war that prompted Western-led sanctions, an exodus of companies from Russia and financial turbulence.
The ruble is expected to weaken further with the beginning of the winter holiday season as companies import more goods to meet consumer demand.
“The Russian ruble is weakening significantly as a result of the escalating conflict in Ukraine,” Grzegorz Dróżdż, market analyst at Invest.Conotoxia.com, told Newsweek on Tuesday. “The currency’s bad condition weakens the country’s purchasing power.”
Newsweek has contacted Russia’s Ministry of Finance for comment.
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The freefall follows the U.S. Treasury Department’s announcement on November 21 of sanctions on dozens of Russian banks, which had been widely used for international payments.
Among them was Gazprombank, which the U.S. had previously avoided to allow European countries to continue paying for Russian gas supplies, the Financial Times reported. Losing this channel could mean a further decrease in revenues from gas, which has been the hardest-hit export for Russia.
Sanctions have made it harder for Russian businesses to deal with international payments and the latest measures could see Russia’s trade balance worsen, pushing down the ruble further. Purchasers of Russian gas and oil will need to find other ways to make payments, which could take time, the Financial Times reported.
It further adds to woes for state natural gas giant Gazprom, which before the war was the largest company in Russia by market capitalization but has since posted record losses as foreign sales dried up, partly due to sanctions.
Dróżdż said the lower-value ruble will favor domestic exports, especially as Russia is an exporting country with a significant trade surplus.
“However, the sanctions packages imposed are having their negative effects, felt by Russians mainly in the form of high inflation,” he said. Last month, inflation was 8.5 percent, more than twice the Russian Central Bank’s (CBR) target.
“The CBR is trying to combat inflation and defend the ruble by raising interest rates,” he said. “Nevertheless, high interest rates on ruble loans have still failed to attract a wide range of investors.”
As part of continuing efforts to dampen down inflation, which is fueled by a labor shortage and high government spending on the military, Russia’s Central Bank raised its key interest rate in October to 21 percent—higher than the emergency level at the start of the war.
Analysts have predicted that the interest rate could go even higher when the Central Bank meets in December.
