Russian President Vladimir Putin’s economic adviser criticized Moscow’s central bank and its monetary policy on Monday after the ruble continued to depreciate against the dollar, breaking the psychological threshold of 100 rubles per dollar, Reuters reported.

The ruble, which has depreciated about 25 percent against the dollar since the invasion of Ukraine began last year, is now at a 17-month low, with the official exchange rate showing the 101.4 rubles needed to buy one U.S. dollar.

In a context where the fall of the ruble has been causing discontent for some time, Maxim Oreshkin, Kremlin economic advisor to President Vladimir Putin, said in an editorial published by TASS, Russia’s most prominent state news agency, that the president’s administration wants a strong ruble and expects “normalization” soon. exchange rate.

“The main source of the depreciation of the ruble and the acceleration of inflation is the soft monetary policy,” Oreshkin accused in the article, adding that “the Central Bank has all the tools to normalize the situation in the near future and ensure that the interest rates at which loans are offered decrease to a stable level”.

“It is in the interests of the Russian economy to have a strong ruble,” said Putin’s adviser.

The national currency of Russia went down

Moscow’s central bank, which last month raised its benchmark interest rate by 100 basis points to 8.5%, instead blamed the situation on a narrowing of Russia’s current account surplus, which has fallen 85% since the beginning of this year.

The central bank said on Monday that it saw no risks to financial stability from the ruble’s weakening, and suggested that another sharp increase in the base interest rate could happen in the near future.

After Vladimir Putin launched a war against Ukraine, the ruble experienced a turbulent run, reaching a low of 120 to 1 against the dollar in March 2022. But only a few months later, the ruble made a miraculous comeback after the introduction of capital controls and Putin’s ultimatum for countries “unfriendly” to Russia to pay for energy imports from his country in Russian national currency.

But since the last half of last year, the fall of the ruble has been constant. Before the war, the exchange rate was approximately 75 rubles to the dollar.

Why is the ruble getting cheaper against the dollar?

“The depreciation of the ruble is an indictment of Russia’s war in Ukraine,” said Timothy Ash, a strategist at BlueBay Asset Management in London.

It noted that the weakening of the Russian national currency was “fueled not only by lower energy bills due to the loss of much of the gas business in Europe, but also by the success of the G7 price cap on Russian oil, higher import costs due to sanctions, and then continued capital flight” from countries.

To stop the fall of the ruble, the Central Bank of Moscow could introduce even tighter capital controls. Another option would be to raise the key interest rate again, a measure it is already using to try to get high inflation under control.

But raising the base rate limits the potential for economic growth and means higher interest rates for the Russian government as it needs to finance its military operations in Ukraine.

Russia’s central bank announced last Wednesday that it would stop buying foreign currency on the domestic market until the end of this year in an effort to help restore the ruble’s exchange rate. But most analysts found this measure insufficient, given the pressure on Russia’s national currency.

The dilemma facing Elvira Nabiullina, head of the Central Bank of Russia

Yan Melkumov, a Moscow-based economist, told Reuters that the central bank, headed by Elvira Nabiullina, was “not fully in control” of the situation. Melkumov says he has more aggressive tools at his disposal to stop the fall of the ruble, but he does not want to use them.

In this sense, the economist cites an example of a sharp increase in the base interest rate to 20%, to which it was raised immediately after the start of the “special operation”. Melkumov says that even raising the interest rate to 15% would be enough to stop the fall of the national currency, but “the Central Bank does not want to kill the economy and business as it was last year.”

As for Maxim Oreshkin’s criticism of the Central Bank of Moscow in the TASS article, it is surprising, given that Elvira Nabiullina is considered one of the few Russian officials whom President Vladimir Putin fully trusts.

Before being appointed to this position in 2013, Nabiullina was Putin’s adviser on economic issues for 2 years, now Oreshkin has taken over this role. Since 2000, when Putin came to power, Nabiullina has continuously held various high positions in the Russian administration.

When Putin appointed her head of the Central Bank of Moscow in 2013, she was the only female central bank governor in the G8 group of countries, from which Russia was later expelled.