To stem rampant inflation, Russia’s central bank has suspended all foreign currency purchases for the rest of the year, while aggressively selling the Chinese yuan in hopes of propping up the ruble. The ruble, currently worth a fraction of a penny, hit its lowest value on Wednesday since the start of the Ukraine war.
The aim is to set a floor for the ruble and limit further price pressure leaking into the country through higher prices of imported goods. Russia’s economy is also suffering from a lack of foreign investment due to Western government sanctions that prohibit companies from doing business with Russia. Most Russian financial institutions are currently suspended from trading in dollars, leaving the country without a steady supply of U.S. foreign exchange reserves.
“This decision is aimed at reducing volatility in financial markets,” the Bank of Russia said. Wednesday.
The official inflation rate reached a year-on-year peak of over 9% in 2019. Augustcontinues to rise. Russian political scientist Kirill Rogov believes these numbers likely underestimate the problem and that real interest rates could be lower. substantially higherciting data from Raiffeisen Bank. analyst and market research companies Romil.
The central bank’s announcement came a week after the U.S. government’s announcement. imposed New economic sanctions against Gazprombank. The bank was previously exempt because it plays a key role in enabling natural gas exports to a handful of U.S. allies in Europe by processing cross-border payments.
As a result, the ruble fell below 114 rubles to the dollar on Wednesday, its lowest level since early March 2022. Moscow daily newspaper Roshyskaya Gazeta called It is a “panic attack on the Russian currency market.”
Finance Minister Anton Siluanov has argued that the sharp drop will benefit exporters whose goods will suddenly become much cheaper for foreigners. The risk, however, is that a weaker ruble will only push up the prices of foreign imports, leading to inflation from abroad.
Russia raises interest rates to highest level in 20 years
Inflation begins to accelerate in Russia following instructions from President Vladimir Putin. hundreds of thousands It increased the number of working-age men fighting in Ukraine and rallied Russian industry to support military objectives. With fewer available workers, wages in the private economy rose sharply. Supply could not keep up with domestic demand, and the rise in labor prices was quickly passed on to consumers.
“Unemployment has never been as low as 2.4%,” Central Bank Governor Elvira Nabiullina told lawmakers in Russia’s lower house of parliament. earlier this month. “We are now in unprecedented territory with nearly all production facilities operating at full capacity.”
Consumer prices are rising. Prices of staple foods such as potatoes almost doubled Since last December. Butter is now so expensive that stores are running out of supplies. prevent theft. Mortgage loan too rose sharply This comes after the government ended generous subsidies for the purchase of apartments and houses in July.
“Inflation has remained high for the fourth year in a row,” Nabiullina told lawmakers, adding: “Prices for almost everything are rising: raw materials, parts, logistics, equipment, labor.” Ta.
Her financial institution’s response to these pressures was to raise the prime interest rate by two percentage points to 21% in October. Levels not seen since 2003.
Nevertheless, this was hardly enough to calm inflation or stop the ruble’s steady decline. In response to this, the Russian economic newspaper RBK said, advocate On Wednesday, it was announced that benchmark interest rates would rise to a staggering 30% to 40% to support the currency, even at the risk of slowing growth.
High rate drugs are more harmful than inflation disease
Not everyone agrees. Alexei Mordashov, chairman of Severstal, a supplier of steel needed for the war effort, said high borrowing rates were already painful and argued that, to make matters worse, results were relatively small.
“This is probably an unprecedented situation in modern world history, where central bank interest rates are 2.5 times the inflation rate and still do not slow down,” Mordashov said. quotation by politiko Like I said on Wednesday. “It’s as if the medicine is more harmful than the disease.”
Russia’s struggle to rein in consumer prices could give the incoming Trump administration significant leverage to bring Russia to the negotiating table.
On Wednesday, his transition team appointed Keith Kellogg will serve as special envoy to Ukraine and Russia. The retired general last week supported the Biden administration’s approval for Ukraine to use long-range ATACMS missiles against targets inside Russia in response to North Korea’s deployment of troops, saying the decision should have been made sooner. said.
“We basically backed away from letting Mr. Zelenskiy fight a war that should have been fought a long time ago.” said Fox News. “They should have done this a year ago.”
In response to the recent escalation, Russia fired an experimental MIRV intermediate-range ballistic missile for the first time, named “.”oleshnik‘ can carry multiple nuclear warheads. This has raised concerns that the conflict could escalate and lead to conflict. world war 3 before President Trump takes office in January.
