The Financial Times reported that the Russian ruble is facing a worsening crisis, with its decline to its lowest levels since February 2022, in light of new US sanctions and the escalation of Russian military spending.
On November 21, the US Treasury Department imposed sanctions on more than 50 Russian banks, including Gazprombank, which will complicate Russian gas transactions with Europe after the sanctions enter into force on December 20.
The impact of sanctions on the currency and the economy
According to the newspaper, the value of the ruble fell by 10% against the dollar, reaching 115 rubles to the dollar by November 27.
The ruble’s performance improved on Tuesday, recording 106.44 against the dollar, but it is still hovering near the levels recorded late last month.
Despite the Russian Central Bank’s intervention by purchasing the ruble using its reserves to support the currency, the ruble remained depressed by 8% over the past month, and by 15% since the beginning of the year. This decline is reminiscent of the decline in its value immediately after the war in Ukraine, according to the Financial Times.
Russian President Vladimir Putin tried to allay fears, saying during a press conference in Kazakhstan on November 28: “There are no reasons for panic.” But the Financial Times pointed out that such statements are often an indication of real economic problems.
The newspaper explained that the Russian government plans to increase spending on defense and security by 25% in 2025 to reach the equivalent of 8% of gross domestic product, which is the highest level since the Cold War.
With inflation rising to more than 8% annually, Russia faces increasing financial pressures, and this threatens the stability of the economy.
Import challenges and cooperation with China
The Financial Times highlighted that the devaluation of the ruble increases the costs of imports, especially from China, which has become Russia’s largest trading partner and represents more than a third of Russian imports.
Last month, the ruble fell by 7% against the Chinese yuan, and this increases the costs of imported equipment, including that used in military industries.
The newspaper pointed out that the Russian Central Bank raised interest rates to 21% in an attempt to control inflation and support the currency.
Analysts expect interest rates to reach 25% before the end of the year. But government support for consumers and businesses through subsidized loan programs is dwindling, and this is increasing pressure on the economy.
Unclear future
The Financial Times newspaper expected that the Russian economy would witness a sharp slowdown in 2025, with economic growth falling to only 1% compared to the 3.1% expected for 2024.
With the reserves of the Russian sovereign wealth fund declining to only $55 billion, the government faces major challenges in financing the growing deficit.
The newspaper concluded that the current economic challenges indicate that “the economic bill of war has come to be paid.”
With the continuation of Western sanctions and the rise in military costs, Russia appears to be entering a more difficult economic phase that may require focusing on the military economy at the expense of citizens’ well-being and economic growth.
