Moscow (AFP) – Ordinary Russians have faced the prospect of rising prices and reduced travel abroad due to Western sanctions over the invasion of Ukraine. It caused the ruble to plummet, sending restless people queuing at banks and ATMs on Monday in a country that has seen more than one currency disaster in the post-Soviet era.
The Russian currency fell by about 30% Against the US dollar on Monday after Western countries announced steps to block some Russian banks from the international payment system SWIFT and to restrict Russia’s use of its huge foreign exchange reserves. The exchange rate later regained strength after a swift move by the Russian Central Bank.
People who fear the sanctions will deal a severe blow to the economy have been flocking to banks and ATMs for days, with reports on social media of running out of long queues and machines.
Moscow’s Public Transport Administration warned city residents over the weekend that they could face problems using Apple Pay, Google Pay and Samsung Pay to pay fares because VTB, one of the Russian banks facing penalties, handles card payments on Moscow metros, buses and trams. .
Economists and analysts said that a sharp depreciation of the ruble will mean a decrease in the standard of living of the average Russian citizen. Russians are still dependent on a large number of imported goods and the prices of these goods are likely to rise significantly. Traveling abroad will become more expensive because rubles buy less currency abroad. The deeper economic turmoil will come in the coming weeks if price shocks and supply chain issues cause Russian factories to close due to lower demand.
“This economy is going to spread very quickly,” said David Feldman, professor of economics at William & Mary in Virginia. Anything that is imported will see the local cost rise in the currency. And the only way to stop it is to provide great support.”
The Russian government will have to step in to support declining industries, banks and economic sectors, but without access to hard currencies such as the US dollar and the euro, it may have to print more rubles. It’s a move that can quickly turn into hyperinflation.
The ruble’s decline brought back memories of previous crises. The currency lost much of its value in the early 1990s after the end of the Soviet Union, with inflation and loss of value prompting the government to get rid of three zeros from the ruble coins in 1997. Then came further declines after the 1998 financial crisis in which many depositors lost their savings and another plunge In 2014 due to low oil prices and sanctions imposed after Russia seized the Crimean peninsula in Ukraine.
The Russian Central Bank immediately intervened in an attempt to stem the ruble’s decline. He raised his key interest rate sharply on Monday in a desperate attempt to support the currency and prevent a bank run.
The bank raised its benchmark interest rate to 20% from 9.5%. This came after a Western decision on Sunday to freeze Russia’s hard currency reservesIt is an unprecedented move that could have severe consequences for the country’s financial stability.
It was not clear exactly what Russia’s share of the estimated $640 billion in hard currency, some of which is held outside Russia, will be decided. European officials said at least half of them would be affected.
This significantly increased pressure on the ruble by undermining the financial authorities’ ability to support it by using reserves to purchase rubles.
Kremlin spokesman Dmitry Peskov described the new sanctions, which included freezing Russia’s hard currency reserves, as “heavy,” but said on Monday that “Russia has the necessary capabilities to offset the damage.”
The central bank ordered other measures to help banks deal with the crisis by injecting more liquidity into the financial system and easing restrictions on banking operations. At the same time, it temporarily prevented non-residents from selling government obligations to help relieve pressure on the ruble from panicked foreign investors trying to make money from these investments.
The steps taken to prop up the ruble are themselves painful because raising interest rates can stifle growth by making companies’ access to credit more expensive.
The ruble fell about 30% against the US dollar early on Monday but stabilized after the central bank’s move. Earlier, it traded at a record low of 105.27 per dollar, down from around 84 per dollar late Friday, before recovering to 98.22.
The sanctions announced last week brought the Russian currency to its lowest level against the dollar in history.
Sweet contributed from New York and McHugh from Frankfurt, Germany. Associated Press reporter Daria Litvinova contributed from Moscow.
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