The ruble is plunging once again, with the Russian currency reaching over 105 rubles per US dollar this week. This marks the lowest point since the spring of 2022, immediately following Russia’s invasion of Ukraine. The ongoing devaluation of the ruble is becoming an increasingly severe challenge for President Vladimir Putin, exacerbating the economic difficulties faced by Russia’s war economy. As the ruble weakens, it is driving up inflation, complicating imports, and making it even harder for Russia to sustain its military operations.
Ruble Plunges Further in 2024
So far in 2024, the ruble has lost over 17% of its value against the US dollar, placing it among the weakest currencies globally. This decline is not just limited to the dollar; the ruble has also experienced significant depreciation against the euro and, notably, the Chinese yuan. These losses reflect a broader economic struggle, fueled by falling energy export revenues and the ongoing impact of international sanctions.
Inflation Soars as Weak Ruble Drives Up Costs
The ruble’s continued fall is contributing directly to rising inflation, which hit 8.5% in Russia this October — far higher than the Central Bank’s target. In response, Russia’s Central Bank raised interest rates to 21%, a move that aims to curb inflation but also places more strain on the economy. The government had initially predicted inflation would decrease by 2025, but this is now uncertain due to the ongoing currency devaluation.
Russians are already feeling the effects of these rising prices, especially on everyday essentials. Basic foods like potatoes have increased by 64% since the start of the year, while dairy products, butter, and bread are also seeing sharp price hikes. The cost of living is growing rapidly, making it harder for ordinary citizens to manage their expenses.
High Interest Rates Threaten Russian Businesses
The combination of inflation and high interest rates is also putting significant pressure on Russian businesses. With borrowing costs at record levels, many companies are struggling to maintain profitability, and some fear that high credit costs could drive them into bankruptcy. The harsh economic environment is stoking frustration within the business community, with some executives, including Sergei Chemezov of defense contractor Rostec, publicly criticizing the government’s handling of the economy.
Sanctions on Gazprombank Deepen Russia’s Economic Isolation
A key factor driving the ruble’s ongoing decline is the tightening of international sanctions. Recently, the United States imposed sanctions on Gazprombank, Russia’s largest remaining unsanctioned bank. These sanctions are having a profound impact on Russia’s ability to finance its military efforts, as Gazprombank is crucial for processing payments for military supplies and wages. The sanctions also make it harder for Russia to continue its gas exports, a vital source of revenue for the country.
The War Economy: Pressure Mounts on Russia’s Financial Resources
Putin’s ability to finance the war in Ukraine has been largely dependent on revenues from energy exports and foreign currency reserves. However, as the ruble continues to weaken and sanctions intensify, Russia’s financial situation is becoming increasingly strained. The country faces mounting challenges in sustaining its military campaign and stabilizing its economy. Without the financial resources to support the war, Russia may find it difficult to continue its operations in Ukraine.
Conclusion: Uncertain Economic Future for Russia
The ongoing depreciation of the ruble, compounded by rising inflation, high interest rates, and the increasing impact of international sanctions, paints a bleak economic future for Russia. The financial pressure on consumers, businesses, and the government is growing, and Putin’s ability to manage the country’s economy while financing the war is increasingly uncertain. As Russia faces a deepening economic crisis, the question remains whether Putin can stabilize the ruble and sustain his war efforts in Ukraine.
