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The Russian ruble is approaching all time lows as it crosses 95 to the USD in recent trading.
This development has caused the Kremlin to begin to use oil revenue reserves for current spending, rather than shifting the assets to ‘rainy day’ funds which have saved the Russian economy in recent past.
Russia has long had a responsible monetary and fiscal policy since the default after the fall of the Soviet Union.
That may be changing.
The Russian ruble has continued its steep decline, reaching 95 rubles against the dollar and 105 against the euro this week. For Russians, this is more than the usual psychological blow (many are used to using the exchange rate as a barometer for the economy’s fortunes): it is a tangible problem. The falling ruble accelerates inflation, which was already on the rise due to a mix of high budget spending, rising internal demand and a labor shortage. To ease pressure on the ruble, the government has been pushed into abandoning one of its key budget principles: using windfall oil profits for current spending, reported Russian independent news outlet The Bell.
For Russians, the most unpleasant consequence of the falling ruble is the acceleration of inflation, which was already surging due to rising demand in an overheating economy and a depleted labor market.
On Wednesday, the Vedomosti business daily (usually reliable on these matters) reported that the government would not allow and the conversion of oil-and-gas windfalls into currency for the National Wealth Fund for the rest of the year. This would mean rejecting a budget rule that has been in place throughout the year. The next day, the Finance Ministry explained that there would still be currency purchase. However, multiple indicators suggest that this budgetary rule will effectively cease to apply in 2023.
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