The Russian ruble is collapsing while Putin’s economy is in trouble

Russia’s currency, the ruble, has fallen to its lowest rate against the U.S. dollar since Vladimir Putin’s full-scale invasion of Ukraine began as sanctions continue to hurt his country’s economy.

After two months of devaluation, the ruble fell to 107 against the dollar on Tuesday for the first time since March 2022, shortly after the start of the war that brought Western-led sanctions, an exodus of companies from Russia and financial turmoil.

The ruble is expected to weaken further as the winter holiday season begins as companies import more goods to meet consumer demand.

“The Russian ruble is weakening significantly due to the escalating conflict in Ukraine,” said Grzegorz Dróżdż, market analyst at Invest.Conotoxia.com Newsweek on Tuesday. “The poor condition of the currency is weakening the country’s purchasing power.”

Newsweek has asked the Russian Ministry of Finance for comment.

The free fall follows the U.S. Treasury Department’s Nov. 21 announcement that it would impose sanctions on dozens of Russian banks that were widely used for international payments.

Among them was Gazprombank, which the US had previously shunned to allow European countries to continue paying for Russian gas supplies Financial Times reported. The loss of this canal could mean a further decline in revenues from gas, the most affected export for Russia.

Sanctions have made it harder for Russian companies to process international payments, and the latest measures could cause Russia’s trade balance to worsen and the ruble to fall further. Buyers of Russian gas and oil will have to find other payment options, which could take time Financial Times reported.

This is compounding the woes of state-owned natural gas giant Gazprom, which was Russia’s largest company by market capitalization before the war but has since posted record losses as foreign sales fell, partly because of sanctions.

Dróżdż said the lower ruble will benefit domestic exports, especially since Russia is an exporting country with a significant trade surplus.

“However, the sanctions packages imposed have their negative effects, which the Russians are feeling primarily in the form of high inflation,” he said. Last month, inflation was 8.5 percent, more than double the Russian Central Bank’s (CBR) target.

“The CBR is trying to fight inflation and defend the ruble by raising interest rates,” he said. “However, the high interest rates on ruble loans still have not attracted many investors.”

As part of its ongoing efforts to curb inflation fueled by labor shortages and high government spending on the military, Russia’s central bank raised its key interest rate to 21 percent in October – higher than the state of emergency at the start of the war.

Analysts have predicted the interest rate could rise even higher at the central bank’s December meeting.