The Ruble Swoons And Russia's Economy Wobbles Further

When you’re a Russian retiree living on a limited income, it’s bad enough trying to contend with skyrocketing prices for staples like eggs, potatoes, or butter. Now add to the list of worries: a swooning ruble hitting lows not seen in years.

“I see these prices, my eyes get wide,” said one retired history teacher who lives in St. Petersburg and tries to get by on a 19,100-ruble ($187) monthly pension. “What's going on? Prices are rising for absolutely everything.”

“Polite words fail me, of course” the 72-year-old woman told RFE/RL’s Russian Service. She asked for her name not to be used to avoid police harassment. “I have to joke about it to cool down my anger,” she added.

Nearly three years into the Kremlin’s all-out invasion of Ukraine, Russia’s economy has defied expectations and the experts who predicted that it would be crippled by sweeping Western sanctions imposed in response to Moscow’ military aggression.

Fueled by the flood of government spending that’s prioritizing the war above all else, gross domestic product is expected to clock in at 3.6 percent growth this year, according to the International Monetary Fund (IMF).

But the torrid pace of spending is overheating the economy. Grappling with inflation hovering above 8 percent, the Central Bank has already hiked rates and could raise them even further in the coming weeks. That in turn has pushed up residential mortgages, not to mention business loans, prompting vocal complaints from business leaders.

Now comes another symptom of an increasingly unhealthy economy: the plunging Russian currency, hitting levels not seen since March 2022, weeks after Moscow launched its invasion of Ukraine.

As of December 5, the ruble stood at 103 to the U.S. dollar. That’s down from 85 in September, but up from its lowest recent level -- 113 -- which it hit in the final days of November.

'The Rules Of The Game Will Be Changed'

The main -- though not only -- reason for the drop? A new set of sanctions that the United States announced on November 21, targeting dozens of Russian banks, including the largest bank to avoid sanctioning to date. The state-owned Gazprombank had dodged that bullet mainly due to its role as a conduit for transactions related to oil and gas exports. Washington had previously feared that sanctioning it would disrupt global oil markets and send oil prices skyrocketing.

Russians -- individuals, banks, and businesses -- were rushing to make transactions ahead of December 20, when the restrictions take effect, Sergei Aleksashenko, a former top official in the Central Bank, said, and that has flooded the market with rubles.

“It seems to me that the sharp jump in the ruble (or dollar) is explained by the fact that the rules of the game will be changed, and no one knows what the new rules will be,” he told RFE/RL’s Russian Service.

Officials, including President Vladimir Putin, have tried to calm jittery nerves for both average consumers and business leaders.

“As often happens in such situations, there is currently an excessive emotional component on the currency market,” Economic Development Minister Maksim Reshetnikov told reporters on November 27. “Experience shows that, after a period of increased volatility, the rate always stabilizes.”

The economic crosswinds are causing headaches for policymakers, both big and small.

Regular Russians -- particularly those in poorer regions far from urban centers like St. Petersburg -- have benefited from the torrent of cash in government spending. Dizzyingly high wages paid to men who volunteer to fight in Ukraine -- not to mention the bonuses and benefits paid to war widows – have spurred consumers to spend -- or even splurge.

Soaring Inflation, Stuttering Growth

High war wages, however, have forced civilian factories, particularly military industrial enterprises, to hike wages to compete, and fill vacancies. Putin himself has publicly lamented that labor shortages have been a problem.

Elevated salaries have fueled inflation, driving up the cost of everyday goods, including butter, potatoes, and eggs. Several regions have reported a rash of thefts of butter and other dairy products, as prices climb. Some retailers have taken to putting dairy products under lock-and-key to prevent theft.

In this undated image provided to RFE/RL’s Russian Service, butter and other dairy products in a St. Petersburg market are displayed in anti-theft boxes to thwart thieves or shoplifters. Russia has seen a spurt of incidents of dairy products being stolen from stores around the country. Experts blame skyrocketing milk prices.

Rates on residential mortgages are also soaring, in conjunction with the Central Bank’s interest hikes, which has in turn choked off home and apartment sales in a growing number of regions.

The ruble’s drop, meanwhile, will make imported goods more expensive -- at a time when Russian consumers are ramping up spending for the long New Year’s and Christmas holidays.

It’s also pinching migrant workers, many of whom hail from Central Asia and send much of their Russian wages back home to support families. The current drop means less money to send.

“If you have to live in Russia, then it makes no difference,” one Uzbek man who works as a taxi driver told RFE/RL. “But if you have to work here and send money back to Kyrgyzstan or Uzbekistan, then there’s no point in working here. Better just to go home.”

Few experts are predicting outright economic collapse anytime soon. More likely the flashing warning lights are pointing to a cooling off, which is what the Central Bank director Elvira Nabiullina has said is the goal of the recent rate hikes. The IMF predicts that the economy will slow to around 1.3 percent growth next year.

“Economic growth has to slow down,” Laura Solanko, an expert on the Russian economy at the Bank of Finland’s Institute for Economies in Transition, told RFE/RL. “But cooling growth is no sign of economic collapse. Russia can sustain broadly [the] current level of household consumption and of warfare with broadly [the] current level of economic activity.”

“It’s becoming [all too clear] that there are no good remedies for the Russian economy’s malaise apart from ending the war; the mother of Russia’s problems,” Alexander Kolyandr, a researcher with the Center for European Policy Analysis, wrote in an op-ed last month.