Russian Ruble Suffers Significant Loss as Effects of Western Sanctions Worsens

The Russian ruble continues to suffer devastating blows as it lost a third of its value last week after the West imposed stringent sanctions on Russia for invading Ukraine. The sanctions have now frozen most of the country’s central bank’s $640 billion reserves and restricted several Russian banks from accessing global payments portal SWIFT, sending the ruble tumbling.

Apart from the ridiculous queues of people trying to stock up on essentials amid rising costs and scarcity, most cities across Russia outwardly appear as though all is well, despite the crashing economy and financial sector.

One shopper told Reuters in Rostov that “the purchases that I planned to make in April, I urgently bought today. A friend from Voronezh also told me to buy for her.” She added that she was scouting for office shelves and tables to purchase and was shopping for a friend in another town, lamenting that it was all heartbreaking.

Another Moscow resident bemoaned the rapidly rising costs of goods, noting: “the watch I wanted to buy now costs around 100,000 rubles, compared to 40,000 around a week ago.”

That said, analysts expect the spending splurge recorded last week to fade over the coming weeks.

Russian Financial Conditions Shrink Dramatically as Interest Rate Doubles

As mentioned earlier, there are no palpable indications that Russia is under any threat of panic. However, with a wipe-out of ruble savings and a 100% hike of interest rates to 20%, mortgage holders and consumers are likely to feel the pinch soon.

Meanwhile, financial conditions, which reflect the accessibility to credit in Russia, have shrunk significantly in 2022. Oxford Economics recently predicted that the plummeting financial conditions could shrink domestic demand by 11% by the end of 2022 and raise unemployment by 1.9% in 2023.

Analyst at Eurasia Group, Zach Witlin, noted that sanctions have already started affecting consumers through the hike in the price of goods and restrictions from digital payments. Witlin added that while consumers are not directly targeted, “fear and caution are exaggerating the impact,” with the mass exit of foreign brands like IKEA spurring a “snowball effect.”