Today marks the one-year anniversary of when the ruble was set free for the first time in its post-Soviet history. In five points, we show how the central bank’s decision to stop depleting international reserves to prop up the currency has upended every facet of the Russian economy, from decimating wages to enriching oil exporters.
1. Runaway inflation
The ruble has shed about 30 per cent against the US dollar, stoking inflation to a 13-year high that the central bank sought to counter with repeated interest-rate hikes up to 17 per cent last December. The Bank of Russia has since unwound much of that emergency rate increase.
2. Rising poverty
Runaway inflation eroded consumers' purchasing power. The resulting drop in wages and disposable income has been so dramatic as to make more Russians destitute. The World Bank predicts Russia will experience for the first time since the 1998-1999 financial crisis a significant increase in its poverty rate, which had almost halved since 2000 when President Vladimir Putin assumed power and oil prices began to rise.
3. Salary cuts
As it has done so many times in its history, the Russian labor market adapts to hard times by cutting salaries and reducing the number of work hours rather than laying off workers. The unemployment rate, which was at 5.2 per cent in November 2014, shrugged off a brief increase and has since returned to 5.2 per cent in September.
4. Goodbye travel
With dwindling incomes, consumers have cut back on expensive shopping habits. They travel less abroad and have switched to Russian food brands. A ban on certain imports slapped on top of a weaker ruble means coveted foreign goods are off limits.
5. Oil exporters
Russia’s key oil producers have benefited from the weakening currency thanks to the tax system and the fact their costs are mainly in rubles and their revenue is in foreign currencies. It’s helped counter their losses from the slump in crude. The government is now considering a windfall tax on oil and gas companies for next year, which would limit oil exporters’ benefits from the ruble’s devaluation.
Bloomberg
