Russian rouble sinks, Kremlin blames loose monetary policy

Sheets of the newly designed Russian 100-rouble banknotes are seen at the Goznak printing factory in Moscow, Russia July 6, 2022. Moscow News Agency/Handout via Reuters

By Reuters

President Vladimir Putin’s economic adviser rebuked the central bank on Monday as the rouble slid past 101 per U.S. dollar, blaming its 30% year-to-date slump on loose monetary policy and revealing growing discord among Russia’s monetary authorities.

The rouble , which has lost around a quarter of its value against the dollar since Putin sent troops into Ukraine in February 2022, hit 101.04 per U.S. dollar, its weakest point in almost 17 months.

As the rouble tumbled, Putin’s economic adviser Maxim Oreshkin said in an op-ed for the TASS news agency that the Kremlin wanted a strong rouble and expected a normalisation shortly, an intervention that could spur the central bank into action ahead of its next scheduled interest rate decision on Sept. 15.

“The main source of rouble weakening and accelerating inflation is soft monetary policy,” Oreshkin wrote. “The central bank has all the tools to normalise the situation in the near future and ensure that lending rates are reduced to sustainable levels.

“A weak rouble complicates the economy’s structural transformation and negatively affects the population’s real incomes,” he said. “It is in the interests of the Russian economy to have a strong rouble.”

The Bank of Russia, which hiked rates by 100 basis points in July to 8.5%, has blamed the rouble’s sharp slide this year on Russia’s shrinking current account surplus – down 85% year-on-year in January-July.

On Monday, the bank said it saw no financial stability risks from the rouble’s weakening and gave another hawkish signal that a rate hike is possible soon.


The rouble has chartered a turbulent course since Russia invaded Ukraine, slumping to a record low of 120 against the dollar in March last year before recovering to a more than seven-year high a few months later, supported by capital controls and surging export revenues.

Before the war, the rouble traded at around 75 to the dollar.

“The weaker rouble is a damning indictment of Russia’s war on Ukraine,” Timothy Ash, a London-based senior sovereign strategist at BlueBay Asset Management, said in an email.

“It is being driven not only by lower energy receipts due to the loss of the bulk of the European gas business but also by the success of the G7 oil price cap, the much higher cost of imports due to sanctions and then continued capital flight.”

To staunch the rouble’s slide, Russia could reintroduce tougher capital controls. Another option would be to raise interest rates, something the central bank is already minded to do given high inflation, but that limits economic growth potential and means higher borrowing rates for the government as it seeks to finance military operations in Ukraine.

Last week, Russia effectively abandoned its budget rule, with the central bank halting the finance ministry’s FX purchases to try and reduce volatility. Analysts widely agreed that those measures alone were too minimal in scope to significantly support the currency.

“The central bank is not fully in control,” independent Moscow-based economist Ian Melkumov told Reuters, although it has aggressive tools that it is currently reluctant to use.

He said the bank could hike rates drastically, as it did to 20% shortly after Russia began what it calls a “special military operation” in Ukraine. A move to even 15% would stop the rouble’s decline, he said.

“(But) the central bank doesn’t want to kill the economy and businesses in the same way it had to last year.”