The slide of the ruble puts Russians in trouble

Russian the currency has weakened considerably during the autumn. At the beginning of September, one dollar was worth 90 roubles, but today one dollar is worth 109 roubles.

In other words, the ruble has weakened by more than 20 percent, which is a big change in the external value of the currency.

Head of the Bank of Finland’s Emerging Economies Research Institute Iikka Korhonen estimates that the deterioration is due to the new US sanctions and rapid inflation, i.e. higher consumer prices.

Last week, the United States imposed new sanctions against Gazprombank, which is important to the energy industry, and other companies in the financial sector.

“The Russian authorities have allowed the ruble to weaken after it was surprisingly strong for a long time. Because of the sanctions, the central bank cannot use its foreign exchange reserves for ruble support purchases.”

Another way to prevent the weakening of the ruble would be to tighten capital restrictions, but in Korhonen’s opinion, that would be politically difficult.

A ruble because of the deterioration, the economy is in a vicious circle, because the prices of imported products are rising. This in turn accelerates inflation, which was 8.5 percent in October. Due to high price pressures, the central bank has raised its key interest rate to 21 percent.

“The strong weakening of the ruble also indicates the fragility and vulnerability of the Russian economy. On the other hand, due to the weakening of the currency, the income of the oil trade in dollars in rubles increases when the currency weakens,” says Korhonen.

Also investigator Sakari Lähdemäki The Institute for Economic Research estimates that the new US sanctions are the single most significant reason for the weakening of the currency.

“From the point of view of the Russian government, the weakening of the ruble may lead to the fact that buying Russian oil is even more economically attractive. As a counterbalance, the citizens suffer from a weakening of the currency, because imported products become more expensive and inflation is likely to accelerate.”

The Bank of Finland predicts that the Russian economy will grow by more than three percent this year, but only by one percent a year in the next two years.

When the state has greatly increased its spending due to a war of aggression, it naturally increases total demand and ultimately also the gross national product.

Several based on forecasts, the labor shortage in Russia will worsen in the near future, production will be increasingly limited by sanctions and inflation will remain very fast.

According to various estimates, one million university graduates have fled Russia since the president Vladimir Putin launched a full-scale offensive in Ukraine in February 2022.