The ruble continues its rapid descent, once again reaching a low of over 105 rubles per US dollar. This marks a significant milestone, as the ruble’s value is now at its lowest point since the spring of 2022, shortly after Russia’s invasion of Ukraine. The continuous devaluation of the ruble is creating increasingly difficult economic conditions for Russia, placing additional pressure on President Vladimir Putin’s war economy and forcing the Kremlin to take drastic measures to stabilize the financial situation.
The Ruble’s Weakening: A Global Phenomenon
In 2024, the ruble has lost more than 17% of its value against the US dollar, positioning it as one of the weakest currencies in the world. Furthermore, the ruble has dropped significantly against both the euro and the Chinese yuan, which are gaining in importance for Russia’s financial system. This rapid depreciation of the ruble is largely attributed to weaker revenues from energy exports and escalating international sanctions that are increasingly isolating Russia from the global economy.
Rising Inflation and Economic Strain
The ruble’s continued slide has had a direct and painful impact on Russia’s inflation rate. As of October 2024, inflation stood at 8.5%, double the Central Bank’s target rate. In an effort to combat inflation, the Russian Central Bank has raised its key interest rate to 21%, but the results have been limited. Experts had expected inflation to decrease by 2025, but the ongoing ruble decline threatens to extend the economic hardship for years to come.
Russian consumers are already feeling the impact of soaring prices. Food staples, such as potatoes, have skyrocketed in cost, with prices up by 64% since the beginning of the year. Other essential products like butter, bread, and dairy products have also seen sharp price hikes, forcing many households to reduce consumption or switch to cheaper alternatives.
High Interest Rates and Business Struggles
The economic pain isn’t limited to consumers alone. High interest rates have placed a heavy burden on Russian businesses, especially in the defense sector, which is a critical part of the economy given the ongoing war in Ukraine. With borrowing costs at record highs, many businesses are struggling to maintain profitability. The country’s top defense industry leaders, including Sergei Chemezov, head of the defense conglomerate Rostec, have criticized the government’s handling of the economy, warning that the record-high interest rates could push companies to the brink of bankruptcy.
Impact of Sanctions on Gazprombank and Energy Exports
Sanctions have played a pivotal role in the ruble’s continuing decline. Recently, the United States imposed sanctions on Gazprombank, the largest remaining unsanctioned financial institution in Russia. This move has further restricted Russia’s ability to conduct international trade and process payments, including those necessary for military financing. These sanctions have directly impacted Russia’s energy exports, making it harder for the country to sell gas to its remaining European customers, such as Hungary and Slovakia, further deepening the financial crisis.
The Financial Toll on Russia’s War Economy
For Putin’s war economy, the consequences of a weak ruble are severe. Revenue from oil and gas exports has been a key pillar of funding the war in Ukraine, but the continuing depreciation of the ruble is eroding the financial foundation for these efforts. Russia’s foreign currency reserves, once a crucial asset for the state, are being depleted faster than expected. The weakened ruble and the added strain from sanctions are making it increasingly difficult for the Kremlin to fund the military operations necessary to sustain the war effort.
A Bleak Economic Future for Russia
The combination of rising inflation, a weak ruble, high interest rates, and harsh international sanctions is creating an increasingly unstable economic environment for Russia. The ruble’s fall is affecting every sector, from consumer prices to business viability, and undermining Putin’s ability to maintain a stable domestic economy. With his financial resources shrinking, it remains unclear how long Russia can continue financing the war in Ukraine without facing even greater economic turmoil.
