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Bank of Russia Takes Measures Upon Currency Weakening
The Russian ruble (RUB) weakened beyond the 100-to-1 U.S. dollar mark due to foreign currency outflows and trade balance challenges. The ruble dipped in early trading but later recovered slightly to hover around 99.5 against the greenback by 8 a.m. London time.
This echoes events in August when the ruble previously crossed the 100-mark, prompting an emergency meeting of the Bank of Russia. At that meeting, the central bank raised interest rates by 350 basis points to 12% in response to concerns about the ruble’s decline and rising inflation, linked to “loose monetary policy,” according to President Vladimir Putin’s economic advisor.
The Bank of Russia subsequently raised its key rate by an additional percentage point to 13% at the September meeting, citing persistent inflationary pressure. The central bank emphasized the need to tighten monetary conditions to bring inflation back to the 4% target by 2024.
Russian inflation as of September 11 stands at an annual 5.5%, up from 5.2% in August and 4.3% in July, partly due to the “pass-through of the ruble weakening to prices.”
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While some Kremlin figures blame loose monetary policy, the central bank points to a sharp drop in the country’s current account surplus. The Bank of Russia’s September report shows the current account surplus for January to August at $25.6 billion, down 86% YoY. The trade balance surplus also fell 68.3%, or $156.7 billion, over the same period.
The ruble has been volatile since Russia’s Ukraine invasion in February 2022, hitting a record low of 120 to the dollar in March 2022 before rebounding to a seven-year high. Factors include central bank measures and export revenue. But Western sanctions, trade flow reversals, and increased imports have since pressured the currency.
The Bank of Russia continues to monitor developments for financial market stability.
