Russia: implications of the rouble’s slump?
The Russian currency has plunged to a record low. At the beginning of the year the rouble exchange rate was 76 per euro but in the last two months it has dropped from 89 to 106 roubles per euro. On the Moscow foreign exchange market the US dollar and the euro are currently trading at rates even higher than those triggered by the panic shortly after the war with Ukraine began. The main reason for the drop in value is the slump in foreign exchange revenues due to sanctions and increased imports.
Kremlin flooding the country with money
Video blogger Maxim Katz points to the major increase in government spending in a post republished by Echo:
“Government spending has risen to unbelievable levels, the state is having to take care of industrial production, buy lots of components and equipment as well as drones from Iran and artillery from North Korea. ... The state has to spend money on building defence positions, invest in import substitution — basically pay for everything endlessly. The state is now the only investor and it is flooding the economy with roubles.”
No cause for concern
Commenting in the pro-Kremlin newspaper Izvestia, financial analyst Alexander Dzhioev says there is no reason to worry:
“If we assess the macroeconomic conditions, the reaction of market participants to recent events seems overemotional. The real effective exchange rate of the rouble, taking into account price levels in different countries, is currently at a level comparable to that in 2021. So the value of the national currency is close to historically appropriate levels. And given the restrictive Central Bank policy and the rising prices, which should curb the demand for imports, there is little reason to expect a further depreciation of the rouble.”
