Ruble's Plunge Reflects Russia's Mounting Economic Pressures Amid Sanctions and Military Expenditures. (Photo by Contributor/Getty Images)
(EPICSTORIAN) – In late November 2024, the Russian ruble experienced a significant depreciation, reaching its lowest value against the U.S. dollar in over two years.
This decline was primarily triggered by new U.S. sanctions targeting major Russian financial institutions, notably Gazprombank, which plays a crucial role in facilitating foreign currency transactions for the Russian market.
Russian Ruble Suffers Foreign Currency shortage
The sanctions led to a shortage of foreign currency as exporters faced challenges repatriating revenues, causing the ruble to plummet to 114 against the dollar and 120 against the euro.
In response, the Central Bank of Russia intervened to stabilize the currency, implementing measures to curb volatility, raising its key policy rate to 21 percent in late October
Elvira Nabiullina, Governor of the Central Bank, has faced criticism from prominent Russian business figures due to the bank’s monetary policies. Alexei Mordashov, a leading industrialist, expressed concerns, stating, “High borrowing costs are stifling investment and hindering economic growth.”
Similarly, Oleg Deripaska, a major figure in the aluminum industry, argued that the central bank’s policies are “excessively restrictive and detrimental to business development.”
Despite these critiques, President Vladimir Putin has expressed support for Nabiullina’s approach, emphasizing the importance of maintaining economic stability amid external pressures. He stated, “It is crucial to find a balanced approach that ensures price stability without impeding economic development.”
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The Russian economy is currently grappling with several challenges, including an overheating economy driven by unprecedented military spending, a tight labor market with unemployment rates around 2.5%, and sanctions-related restrictions limiting access to Western equipment and technology.
In addition to these issues, the reallocation of oil exports from Western markets to countries like India and China has introduced logistical challenges and increased costs. The weakening ruble has further amplified import expenses, contributing to the rising cost of living for ordinary Russians.
Russia’s Defense Spending
Despite a reported GDP growth of 3.6% in 2023 and an expected 4% in 2024, Russia’s economy faces significant underlying issues. The surge in defense spending has led to an overheated economy, with inflationary pressures mounting.
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“Labor shortages, driven in part by military mobilization, have heightened wage inflation, while sanctions continue to restrict access to Western technology and capital. These challenges raise significant concerns about the long-term sustainability of Russia’s economic policies amid the ongoing war.
