The ruble is falling. For the Kremlin, this is a double-edged sword.

The Russian ruble is weakening against other currencies, complicating the Kremlin’s efforts to keep consumer inflation under control while it overheats the economy with spending on its war against Ukraine on the other.

The official Central Bank exchange rate on Friday was set at 109 per US dollar, which means the ruble is worth less than a penny in dollar terms. At this rate, the ruble was recovering from lows of around 114 to the dollar, which it reached earlier this week.

There has been a similar decline in the Chinese yuan, which has largely replaced dollars and euros in foreign trade after sanctions imposed by Ukraine’s Western allies cut Russia off from most transactions with Western companies and banks.

Russians polled Friday on a street in Moscow, where careless remarks can lead to jail time, took the decline in stride.

Muscovite Ekaterina, who declined to give her last name, said that she had just made an advance payment 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 personally, people who love to travel. But for the Russian economy this is not so bad. Domestic tourism, domestic industry is developing.”

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

The Kremlin is engaged in a tricky juggling act. Government spending on the war has factories running at top speed and the economy growing faster than many expected, given the sanctions. The resulting inflation – an annual rate of 8.5% in October – forced the central bank to raise interest rates to a painful 21% to slow borrowing and spending. That has led to complaints from business leaders facing high borrowing costs and fueled economists’ predictions that tight lending conditions will eventually slow the economy.

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

“Therefore, in general, in my opinion, the situation is under control and there is definitely no reason to panic.”

Still, the ruble and inflation remain key issues 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 are two factors that are very noticeable and you can feel them in your pocket,” he said. “And there is no propaganda in the world that will convince you that prices don’t go up when prices go up. That’s why the Kremlin is so sensitive and really pays so much attention to fighting inflation.”

The weaker ruble means Russians will pay more over time for imports, especially for cars, appliances and electronics made in China, now Russia’s top trading partner, Kluge said.

There are many reasons for the ruble’s recent fall from 85 to the dollar in August. The price of oil, Russia’s most important export, has fallen; foreign investors can no longer buy ruble investments, and Russia’s inflation rate means its currency tends to lose value compared to that of trading partners.

A key factor recently may have been US Treasury sanctions against Russia’s Gazprombank, announced on November 21. Because the bank was a customer conduit for what remained of Russia’s oil and natural gas trade in Europe, sanctions blocked one source of foreign income. and increasing pressure on the ruble. The big question is when and whether Russia will be able to find a workaround for this problem.

A weaker ruble isn’t all that bad for the Kremlin, as it increases revenues from oil and gas exports in ruble terms. For now, the central bank is managing the rate as best it can after the shock of Gazprombank’s sanctions, said Chris Weafer, CEO of Macro-Advisory Ltd. sanctions, the rate is set by the central bank based on its assessment of trading needs.

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

“Still, there was an element of shock when Gazprombank was added to the sanctions,” he said. “They decided that the best course of action in the short term was to let the ruble weaken. And that’s because it helps the Treasury significantly.”

The central bank will have to juggle inflation and fiscal concerns and find the rate that best suits the circumstances, Weafer said. One way to do this is to require exporters to convert most 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.”