SUMMARY
- The Russian ruble nears 17-month low, with President Putin's advisor blaming loose monetary policy for its decline.
- Central bank calls emergency rate meeting, halts foreign currency purchases for the year, igniting inflation fears.
- Despite challenges, Russian GDP grows by 4.9% in Q2, though inflation and policy could weaken future growth.
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The Russian ruble's value has dropped sharply, slipping past the 100 mark against the U.S. dollar, its weakest in nearly a year and a half. This decline was criticized by President Vladimir Putin's economic advisor, who attributed it to improper handling of monetary policies.
Since the beginning of the year, the ruble has lost about 30% of its value against the dollar. The Bank of Russia has pointed to the nation's diminishing trade surplus, highlighting an 85% fall year on year from January to July, as the main culprit. The currency was trading just above 101 to the dollar by mid-afternoon in London, prompting the central bank to call an emergency rate meeting for Tuesday to address the situation.
Maxim Oreshkin, Putin's economic advisor, stated in an interview that the depreciation of the ruble and the accompanying inflation were mainly because of lax monetary policies. He confidently stated that the central bank had all the tools needed to stabilize the situation shortly. "A strong ruble is in the best interest of the Russian economy," he said, expressing concern over how a weak ruble negatively impacts both economic restructuring and the people's real income.
In response to the currency crisis, the central bank has suspended foreign currency purchases for the rest of the year. This move is aimed at supporting the ruble but has led to growing fears of escalating inflation. The economic situation is also complicated by the challenges of transforming Russia's economy amid increasing isolation and sanctions from the West.
Despite these hurdles, Russia's economy has shown some resilience. The country's GDP has grown 4.9% year on year in the second quarter, rebounding from a previous contraction. However, experts like William Jackson, chief emerging markets economist at Capital Economics, caution that the current state of the economy may lead to increased inflation pressures and result in further monetary policy tightening. This could ultimately weaken growth in the coming years, especially if the government continues to support the war effort through fiscal policy.
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