The current government of Russia has a talent for denying the obvious. Vladimir Putin spent months denying that Russian troops were invading Ukraine, despite massive amounts of evidence to the contrary. In the face of overwhelming evidence that Russia-backed rebels shot down a commercial airliner over the summer, Russian leaders spun webs of conspiracy theories in an effort to implicate the Ukrainian government.
One Russian institution, though, has been consistently willing to admit to the existence of an observable reality. And it appears that it is now paying a price. After months of providing honest, if gloomy, appraisals of the state of the Russian economy, the Russian Central Bank this week finds itself facing accusations from lawmakers that it is trying to sabotage the country’s economy.
Yevgeny Fyodorov, a senior member of Putin’s United Russia party and chair of the Russian Duma’s economic policy committee, reportedly told Russian News Service Radio that the bank is “an institutional enemy of the country” and accused it of orchestrating a steep decline in the value of the Russian ruble against international benchmark currencies. At Fyodorov’s request, the Russian Prosecutor General’s Office has begun inquiries into the bank’s activities, bank officials confirmed to Interfax on Monday.
The status of the ruble has been a vexing problem for the bank, as it has lost close to 40 percent of its value against the U.S. dollar and the euro this year. The bank spent some $70 billion of the country’s foreign currency reserves in an effort to protect the ruble earlier this year.
And, despite announcing last month that it would abandon its increasingly fruitless effort to prop up the plunging currency, the Central Bank of Russia on Wednesday confirmed that it had yet again dipped into its foreign currency reserves this week in an effort to halt the currency’s slide.
The bank announced that it had sold $700 million in reserves Monday, after the ruble dropped another six percent against the dollar. As of Wednesday morning in the U.S., the intervention appeared to have had little effect. The ruble was trading at between 54 and 55 to the dollar on Moscow markets, a record low.
The ruble’s decline illustrates the challenge facing the Central Bank of Russia. Many of the problems driving the decline in the ruble’s value are outside the control of both the central bank and the Russian government more broadly.
The Russian economy has been pummeled by international sanctions in the wake of Russia’s invasion of Ukraine’s Crimean peninsula, its continued support of a violent uprising in eastern Ukraine, and increasingly aggressive military posture toward its neighbors.
Additionally, the oil markets have been severely hurting the Kremlin’s biggest revenue stream. Oil prices have dropped from well over $100 a barrel to about $70 in recent months. The Russian government’s primary source of income is tied to the sale of oil and natural gas on the international markets. Analysts believe Russia needs oil prices to be at or above $100 per barrel to keep its extraction industry profitable and the stream of tax revenue flowing to Moscow.
Last week’s decision by the Organization of Petroleum Exporting Countries to keep production at current levels, ignoring a call from some members to create an artificial shortage in order to boost prices, was terrible news for Russia. The biggest players in international oil markets, particularly Saudi Arabia, can tolerate lower prices, and are willing to do so in order to put pressure on U.S. shale oil producers. But a side effect is the significant damage it is doing to the Russian economy.
Until now, the country’s central bank has been fairly matter-of-fact about the headwinds facing both the ruble and the economy more generally. As Russian political leaders, most notably Putin, shrugged off the impact of international sanctions, the bank last month issued a report predicting that the Russian economy would almost certainly fall into recession in the near future.
The bank has also had to make a series of embarrassingly unsuccessful forays into the international debt markets throughout the fall and winter, where it has been unable to sell its bonds at interest rates it deemed acceptable because of investors’ nervousness about the long-term value of any security denominated in rubles.
But with terms like “enemy of the country” being thrown around by powerful lawmakers, and prosecutors knocking on the door, it looks as though the independence of the Bank of Russia may be facing a challenge.
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