Russian ruble collapses as Putin’s economy struggles

The Russian currency, the ruble, has fallen to its lowest against the US 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 fell to 107 against the dollar on Tuesday for the first time since March 2022, just after the start of the war that led to Western-led sanctions, an exodus of businesses from Russia and financial turbulence.

The ruble is expected to weaken further with the onset of the winter holidays 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 poor state of the currency weakens the country’s purchasing power.”

Newsweek has contacted Russia’s Ministry of Finance for comment.

The freefall follows the US Treasury Department’s announcement on November 21 of sanctions against dozens of Russian banks that had been widely used for international payments.

Among them was Gazprombank, which the US had previously shunned to allow European countries to continue paying for Russian gas supplies. Financial Times reported. Losing this channel could mean a further drop in revenues from gas, which has been Russia’s hardest-hit export.

Sanctions have made it more difficult for Russian companies to handle international payments, and the latest moves could worsen Russia’s trade balance and further depress the ruble. Buyers of Russian gas and oil will have to find other ways to make payments, which may take time Financial Times reported.

That adds to problems for state natural gas giant Gazprom, which before the war was Russia’s biggest company by market capitalization but has since suffered record losses as foreign sales dried up, in part because of sanctions.

Dróżdż said the lower-valued ruble will favor domestic exports, especially since Russia is an exporting country with a significant trade surplus.

“However, the imposed sanctions packages have their negative effects, which are particularly felt by the Russians in the form of high inflation,” he said. Last month, inflation was 8.5 percent, more than double the Central Bank of Russia’s (CBR) target.

“The CBR is trying to fight inflation and defend the ruble by raising interest rates,” he said. “However, high interest rates on ruble loans have still failed to attract a broad range of investors.”

As part of continued efforts to curb inflation, driven by labor shortages and high government spending on the military, Russia’s central bank raised its key interest rate in October to 21 percent — higher than emergency levels at the start of the war.

Analysts have predicted that interest rates could go even higher when the central bank meets in December.