Russians are bracing for higher prices as the rouble falls against both the dollar and the euro.
Russia’s Central Bank announced it will hold an extraordinary meeting on Tuesday after the rouble reached its lowest value in almost 17 months on Monday morning.
As Moscow increases military spending and Western sanctions weigh on its energy exports, the currency dropped below the psychologically important level of 100 to the US dollar.
However, it did rise back to above the mark after the bank’s announcement it would review its key interest rate, raising the likelihood of an increase in borrowing costs that would support the flagging rouble.
The meeting was set after President Vladimir Putin’s economic advisor, Maksim Oreshkin, blamed the weak rouble on “loose monetary policy” in an op-ed Monday for state news agency Tass.
He said a strong rouble was in the interests of the Russian economy and that a weak currency “complicates economic restructuring and negatively affects people’s real incomes”.
Analysts say the weakening of the currency was being driven by increased defence spending and falling exports, particularly in the oil and natural gas sector.
Importing more and exporting less means a smaller trade surplus, which typically weighs on a country’s currency.
“The most fundamental factor is the structural change in the Russian economy,” said Alexandra Prokopenko, a non-resident scholar at the Carnegie Russia Eurasia Centre and a former Russian Central Bank official.
“The demand is now driven by state expenses of a wider military industrial complex. Here I mean not only enterprises which are working on the war but also a very extensive part of the civil sector.”
Pivoting the entire economy to a war footing not only drives up imports but also raises the prospect of worsening inflation, she added.
To help lessen that prospect, the Central Bank said last week it would stop buying foreign currency on the domestic market until the end of the year to try to prop up the rouble and reduce volatility.
Some Russians living in Moscow on Monday appeared concerned about the weakening currency.
“Prices will rise, which means that the standard of living will fall. It has already fallen, and it will fall even more — there are definitely more poor people,” said Vladimir Bessosedny, a retired teacher.
Others hoped the fall of the rouble was temporary and that it would stabilise.