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Russia’s central bank said it may raise key interest rates after the ruble fell below 100 reais to the dollar on Monday, addressing the economic fallout from President Vladimir Putin’s war in Ukraine. There is a debate among policy makers about this.
Almost a year and a half after Putin ordered the invasion, Russian tech bureaucrats are balancing conflicting priorities between economic growth and currency stability at a 16-month low against the dollar. I am struggling with
After the ruble’s plunge, the Kremlin made a rare public appearance on Monday among senior Russian officials as it continued to praise the debt-backed growth that drove the ruble’s depreciation while trying to ease growing fears about the ruble. caused disagreements.
Duma Finance Committee Chairman Anatoly Aksakov told local news site Ura.ru on Monday that in his native Chuvash region in central Russia, “businesses are overloaded and production levels are rising.” Ta.
“People are getting paid. [region] “We are living life to the fullest, everyone is smiling and there is no stress that the dollar rate is approaching 100 rubles,” he added.
But its effects are already being noticed in areas farther from Moscow, which until now have largely escaped the effects of the war.
In the Siberian oil city of Surgut, a caption played in the office of a local news agency on Sunday: “Putin is a fucking brain and a thief. 100 rubles a dollar is insane!” did.
Putin’s economic adviser Maksim Oreshkin wrote an article for the state news agency TASS early Monday morning, containing thin criticism of the central bank, arguing that a “strong ruble would benefit the Russian economy” and that otherwise He said the economy was recovering. After last year’s recession.
Oreshkin blamed the ruble’s depreciation after the central bank eased monetary policy, saying it had boosted debt-driven demand by R$12.8 trillion, outpacing the budget deficit and overheating the economy. .
“Current exchange rates are far from fundamental levels and are expected to normalize in the near future,” said Oreshkin.
However, the central bank, which abandoned its exchange rate target in 2014 and switched to a floating exchange rate regime, said the ruble was under pressure from other factors, including a decline in export volumes and a simultaneous increase in domestic demand for imports as government borrowing increased. said there is.
The central bank said a possible interest rate hike at its next meeting was needed to stabilize inflation at its 4% target, but said the ruble’s depreciation did not threaten Russia’s financial stability. added.
A ballooning deficit due to increased military spending, declining export earnings, and an increasing reliance on imports have accelerated inflation and contributed to the depreciation of the ruble.
Inflation rose above the central bank’s target rate to 4.3% in July and is expected to rise to 5-6.5% this year.
According to Natalia Lavrova, chief economist at BCS Global Markets, Russia’s inflation rate is still lower than most of Europe, but thanks to the country’s energy resources and the early lifting of pandemic restrictions, seasonally adjusted July figures are expected to rise. The inflation rate was 8.5%.
Rising inflation has pushed central bank governor Elvira Nabiullina, who has curbed inflation so far by aggressively raising interest rates, to confront hardline critics who have pushed for rate cuts to stimulate borrowing. ing.
Alexandra Prokopenko, a former central banker and non-resident scholar at the Carnegie Russia-Eurasian Center, said, “The state is basically boosting import demand through spending and subsidized borrowing, which has fundamentally depreciated the ruble. I am letting you,” he said.
She compared that response to the next response. story The story of a drunken man who searches for his lost key under a streetlight instead of in a park. “Blaming central banks is like a drunken hunt, looking for the culprit where the light is,” she said.
Economists say policymakers are striving to keep Russia’s economy stable while fueling Putin’s war machine and reducing the impact of Western sanctions.
“The ruble is slowly losing value due to the current forecast of war and the Russian budget deficit.” [to fund it] It will continue for years until Putin dies or leaves office,” University of Chicago economics professor Konstantin Sonin wrote on Twitter last week.
The central bank announced last week that it would suspend foreign currency purchases until the end of the year to “reduce volatility.” But Sonin said the impact of such measures on the ruble would be limited as more than half of Russia’s foreign exchange reserves are frozen under Western sanctions.