Russia Tries to Bolster Ruble as Inflation Adds to Economic Woes

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Russia’s ruble has hit a 16-month low against the US dollar, causing concerns over rising inflation. On Thursday, one of President Vladimir V. Putin’s top supporters in state media criticised the country’s financial authorities for having an exchange rate that has been globally mocked. The Russian central bank has taken action to stabilise the currency, as the latest bout of financial volatility was unleashed by Putin’s war against Ukraine. Currently, Russia is facing challenges in a struggling ruble which is causing inflation, as well as government budget deficits that raise concerns about the sustainability of the country’s intense spending on the war. These challenges show how Russia’s changing economy is putting pressure on Moscow’s financial policymakers, who have reacted to wartime shocks, but still face longer-term issues. Deficits and exports affected by sanctions have disrupted Russia’s economic equilibrium. The central bank has predicted inflation between 5 and 6.5% this year. On Wednesday, it was reported that the annual rate of inflation had risen to 4.3% in July, two months ahead of the predicted time. This high level of inflation has led to the belief that the central bank’s actions may not completely support the ruble. Meanwhile, the weakening of the ruble also means that prices will rise in Russia, just when the country is heading towards an election campaign – an untimely event for Putin. The government hopes that Russia will generate enough GDP to cover the war expenses, however, analysts are pointing out that much of the economic output is actually driven by state spending on the war effort, which in turn drives inflation. The cheaper currency will help the government finance its war efforts, as Russian oil sold in foreign currency will buy more rubles at home. Some analysts believe that the Russian government is deliberately allowing the ruble to weaken in order to maintain budget intake, which has already been affected by low oil prices.

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