The Russian ruble is weakening against other currencies, complicating the Kremlin’s efforts to rein in consumer price inflation, even as it overheats the economy with spending in the consumer goods sector. war against Ukraine with the other.

The central bank’s official rate for Friday was set at 109 per US dollar, meaning the ruble is worth less than a cent in dollars. At this rate, the ruble was rebounding from its lowest level around 114 per dollar reached earlier in the week.

Similar declines were seen against the Chinese yuan, which has largely replaced the dollar and euro in foreign trade after sanctions imposed by Ukraine’s Western allies cut Russia off from most transactions with Western companies and banks.

Russians interviewed on the street in Moscow on Friday – where careless remarks can lead to prison sentences – accepted the decline without hesitation.

Muscovite Ekaterina, who declined to give her last name, said she had just made a prepayment for a vacation in Egypt, adding “I’m afraid to know what the rest of the payment will be.” But she added: “Maybe this only concerns us, people who like to travel. But for the Russian economy, it is not so serious. Domestic tourism is growing. »

Semyon, again without a last name, was even less worried. “My salary is in rubles, I pay my taxes in rubles, I buy a car in rubles and I do my shopping in rubles. Why do I need this dollar, please explain this to me.

The Kremlin is engaged in a delicate juggling act. Government spending on the war is keeping factories running at full speed, and the economy is growing faster than many expected given the sanctions. The resulting inflation led the central bank to increase its benchmark interest rate at a painful 21% to slow down borrowing and spending. That led to complaints from business leaders facing high credit costs and predictions from economists that the credit crunch would eventually slow the economy.

Russian President Vladimir Putin said that the recent decline was “related not only to inflation processes, it is also related to payments to the budget, it is related to oil prices, there are many factors of a seasonal nature.”

“Therefore, generally speaking, in my opinion, the situation is under control and there is certainly no reason to panic.”

The ruble and inflation nonetheless remain major concerns for the Kremlin, said Janis Kluge, an expert on the Russian economy at the German Institute for Security and International Affairs in Berlin.

“The inflation rate and the exchange rate, those two are very visible and you can feel it in your pocket,” he said. “And there is no propaganda in the world that can convince you that prices are not rising while prices are rising. This is why the Kremlin is so sensitive and gives such priority to the fight against inflation.”

A weaker ruble means that over time Russians will pay more for imports, especially for automobiles, household appliances and electronics made in China, now Russia’s largest trading partner, said Kluge.

There are multiple reasons for the recent decline of the ruble, which reached 85 to the dollar in August. THE The price of oil, Russia’s main export product, has weakened.; foreign investors are no longer available to purchase ruble investments, and Russia’s inflation rate means its currency tends to lose value compared to that of its trading partners.

Recently, a key factor may have been US Treasury sanctions against Russian bank Gazprombankannounced on November 21. As the bank was the conduit to customers for what remained of Russia’s oil and natural gas trade in Europe, the sanctions blocked a source of foreign revenue and increased pressure on the ruble. The big question is when and if Russia will find a solution to this problem.

The weakening of the ruble is not so bad for the Kremlin, as it increases revenues from oil and gas exports in rubles. For now, the central bank is managing the rate as best it can after the shock of Gazprombank sanctions, said Chris Weafer, CEO of Macro-Advisory Ltd. As there is no free trading of the ruble on the Moscow Stock Exchange or any other exchange due to sanctions, the rate is set by the central bank based on its estimate of trading needs.

“The market is now completely under the control of the central bank, and it sets rates every night based on what it sees, the influx of money from Russian exporters and the demand for foreign exchange from companies that want to buy goods,’” Weafer said, using the abbreviation foreign exchange.

“Nevertheless, there was an element of shock when Gazprombank was added to the sanctions,” he said. “They decided that the best short-term solution was to let the ruble weaken. And that’s because it helps the Finance Ministry significantly.”

The central bank will have to juggle inflation and fiscal concerns and come up with the rate best suited to the circumstances, Weafer said. One way to do this would be to require exporters to change more of their foreign exchange earnings into rubles: “They will have to put all these factors together and find what they think is the optimal rate. »