Russian Rouble hits record low amid tightening sanctions
The Russian rouble has reached its lowest level since the beginning of the invasion of Ukraine, with the exchange rate exceeding 105 per US dollar (84 pounds). The sharp weakening of the Russian currency comes amid new sanctions targeting Gazprombank and rising tensions between Russia and Western countries.
The rouble has once again lost value. Russian Finance Minister Anton Siluanov presents the current situation in a positive light, describing the depreciation of the rouble as "very, very favourable" for exporters. According to the minister, a weaker currency allows Russia to finance military operations in Ukraine more effectively by reducing the real costs of purchasing weapons and paying soldiers. However, experts point out that this approach may have long-term negative consequences for the Russian economy.
Market analysts unequivocally indicate that the dramatic fall in the rouble's exchange rate is due to new US sanctions targeting Gazprombank and over 50 Russian banks with international ties. On the international currency market, the rouble reached a level of 107 per dollar and 113 per euro, representing the lowest value since March 2022.
Adjustment of the settlement system
The Central Bank of Russia has been forced to set the official rouble exchange rate at 110.49 per euro. This situation is a direct consequence of June's events when US sanctions forced the Moscow Exchange to suspend trading in dollars and euros. Since then, official exchange rates have relied solely on over-the-counter transactions involving major exporters and commercial banks.
The current collapse of the rouble has severe consequences for average Russians. The weakening of the currency translates into a significant increase in the prices of imported goods, which, combined with already high inflation, poses a serious burden on household budgets. It is worth recalling that the Russian currency hit a historic low of 150 per dollar shortly after the invasion of Ukraine began in February 2022.
Impact of sanctions on the financial system
Market experts highlight the particular significance of the latest sanctions against Russian banks. Until now, Gazprombank remained the last large Russian financial institution that had not been subject to US restrictions. The new limitations significantly hinder the conduct of international financial transactions, which directly affects Russia's foreign trade.
According to market data, since the beginning of the year, the rouble's exchange rate against the dollar has fallen by 14 per cent. Despite the Central Bank of Russia maintaining high interest rates, the country continues to experience high inflation. Particularly concerning is the rise in prices of basic food items—milk, potatoes, and butter—which places an increasing burden on Russian consumers.
The situation is further complicated by the Kremlin's fiscal policy. Since 2022, Russia has consistently increased military spending, allocating significant funds for the purchase of military equipment, armaments, and increased salaries for military personnel. A system of one-off payments for military families has also been introduced, further straining the state budget.
Analysts also point to a decline in Russia's revenue from energy exports. Last year, these revenues decreased by about one-quarter, as a direct result of Western countries' price cap on Russian oil. This situation, combined with rising military expenditures, poses significant challenges to Russia's financial stability.
Another challenge for the Russian economy remains the issue of international trade. After the suspension of standard settlement channels in dollars and euros, Russia has been forced to seek alternative solutions, including increasing the use of the yuan in trade with China. However, these changes are unable to fully compensate for the lost opportunities to conduct transactions in major international currencies.
