Thursday saw a further tumble for the embattled Russian ruble, which fell a staggering 3%, surpassing 93 per dollar. This plunge marks the ruble’s lowest level since March 2022 and escalates its year-to-date losses to an eyebrow-raising 25%.
Why the sudden downward spiral, you ask? Well, it seems that last month’s mutiny leader, Yevgeny Prigozhin, head honcho of Wagner, may have slipped back into Russia. This development counters a previous agreement that saw him exiled to Belarus following the upheaval on June 24.
Belarusian President Alexander Lukashenko made this revelation to the press on Thursday, adding a layer of uncertainty about whether Wagner fighters would also make a move to Belarus. The final call on this matter, according to Lukashenko, is up to Moscow.
This news could stir the pot of doubt over the stability of Vladimir Putin’s regime, a factor that’s been weighing on the ruble. Indeed, since the Wagner group orchestrated its mutiny just two weeks ago, the currency has seen a significant 10% drop against the dollar.
The ruble had already crossed the line of what the Kremlin considers its “comfort zone” at around 80-90 per dollar due to increasing political uncertainty. This latest hit is a significant blow, especially considering the protective measures that Russian capital controls have put in place against Western sanctions and the mounting costs associated with the Kremlin’s involvement in Ukraine. Unfortunately, the unexpected rebellion from Wagner forces shattered much of this economic tranquility.
In fact, as the mercenary forces marched towards Moscow that day, demand for foreign currencies in Russia skyrocketed by 70%-80%.
Bank of Russia Governor Elvira Nabiullina points to the country’s shifting balance of trade as the primary instigator behind the ruble’s decline, as import demand rises. At a conference in St. Petersburg on Thursday, she suggested the government had no reason to intervene, considering the ruble’s situation posed no threat to financial stability.
“We don’t target the ruble exchange rate,” she clarified. “For us, any exchange rate is acceptable, we take it into account when making decisions on monetary policy.”
As entrepreneurs and investors, it’s crucial to be aware of such tectonic shifts in the currency market. Although the government may not see it as a risk, the fluctuating ruble undeniably impacts the cost of doing business in Russia and could influence investment decisions. The situation once again underscores the ever-present interplay between politics and economics, reminding us that in our globalized world, we truly are all interconnected.