Summary:
- The Russian ruble reached its weakest point in nearly 17 months, sliding past $101 against the US dollar.
- President Putin's economic adviser, Maxim Reshkin, attributed the ruble's decline to the soft monetary policy of the central bank and warned about accelerated inflation.
- Reshkin's intervention may lead to action by the central bank before the scheduled interest rate decision in September.
- Despite a rate hike in July, the ruble slide continued, prompting concerns about its impact on the economy.
- The central bank linked the ruble's decline to Russia's shrinking balance of trade.
- Options to counter the ruble slide include stricter capital controls and potential interest rate hikes, but these choices present challenges.
- The economic situation has implications for funding Russia's military operations in Ukraine.
The Russian ruble slid past $101 per US dollar on Monday to reach its weakest point in almost 17 months. President Vladimir Putin's economic adviser blamed the slump on the country's central bank. In a sign of growing discord among Russia's monetary authorities, Maxim Reshkin said soft monetary policy had weakened the ruble and accelerated inflation. He further wrote in an op-ed for Russia's TASS news agency that he wanted a strong ruble and expected normalization soon. Reshkin's intervention could push the central bank into action ahead of its next scheduled interest rate decision in September. Economist Ian Melkumov said the central bank faced some tough decisions. The ruble slide was expected to stop somewhere pretty soon.
Soft Monetary Policy and Ruble Weakness
Maxim Reshkin, an economic adviser to President Vladimir Putin, attributed the ruble's slide to soft monetary policy adopted by the country's central bank. He pointed out that this approach not only weakened the ruble but also led to accelerated inflation.
Anticipation of Normalization
In his op-ed for Russia's TASS news agency, Reshkin expressed his anticipation of a ruble normalization. He called for a stronger ruble and indicated that measures should be taken to achieve this outcome.
Potential Central Bank Action
Reshkin's intervention might prompt the central bank to take action prior to its upcoming interest rate decision in September. Economist Ian Melkumov emphasized the challenges the central bank is facing and the difficult decisions it has to make.
Continued Ruble Slide
Despite expectations of the ruble slide stopping, it continued unabated. The central bank had already increased rates by 100 basis points in July, reaching 8.5%, after a period of stability. The bank indicated the need for further rate hikes before the next month's key meeting.
Trade Balance and Ruble's Decline
The central bank attributed the significant decline of the ruble this year to Russia's diminishing balance of trade. The ruble's value has decreased by about a quarter against the dollar since the conflict with Ukraine began.
Efforts to Counter Ruble Slide
To halt the ongoing ruble slide, Russia might consider measures such as reintroducing stricter capital controls or raising interest rates. However, these options come with their own challenges, such as limiting economic growth and increasing borrowing rates for the government.
Impact on Military Operations
These economic considerations are particularly crucial as Russia seeks funds for its military operations in Ukraine.
The Russian ruble's continued slide against the dollar poses economic challenges for the country, prompting discussions on potential interventions by the central bank. The decisions made in the coming months will likely have significant implications for Russia's economic stability and growth.