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enterprisewired · 8 months

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Russian Ruble Weakens Beyond 100 to US Dollar Amid Economic Challenges

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In the early hours of Tuesday, the Russian ruble faced a significant setback, breaching the symbolic threshold of 100 against the U.S. dollar. This depreciation was attributed to ongoing foreign currency outflows and a contracting balance of trade, both exerting substantial pressure on the country’s currency.

A Modest Recovery

However, as the morning progressed, the Russian ruble managed a modest recovery, stabilizing just above 99.5 against the greenback by 8 a.m. London time.

This recent episode echoes a similar occurrence in August when the Russian ruble last weakened into triple digits. Back then, the Bank of Russia swiftly responded by convening an emergency meeting, deciding to raise interest rates by a substantial 350 basis points to 12%. This move was prompted by an op-ed from President Vladimir Putin’s economic advisor, placing blame on the currency’s plunge and the surge in inflation on what was termed a “loose monetary policy.”

Russian rouble slides past 101 vs dollar

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The central bank didn’t stop at that; in its September meeting, it raised the key interest rate by an additional percentage point, pushing it to 13%. The rationale behind this move was the persistent inflationary pressure faced by the Russian economy.

In a statement following the meeting, the Bank of Russia explained, “Significant proinflationary risks have crystallized, namely the domestic demand growth outpacing the output expansion capacity and the depreciation of the Russian ruble in the summer months.”

Russian Inflation

As of September 11, Russian inflation had risen to an annual 5.5%, up from 5.2% in August and 4.3% in July. The central bank pointed out that the pressure intensified due to the pass-through effect of the ruble’s weakening on prices.

While figures from the Kremlin attribute the ruble’s rapid depreciation to loose monetary policy, the central bank emphasizes a sharp decline in the country’s current account surplus. The Bank of Russia’s September report revealed a current account surplus of $25.6 billion for the January to August period, marking an 86% year-on-year decrease from $184.8 billion in the same period of 2022. The trade balance surplus for the corresponding period also plummeted by 68.3%, amounting to $156.7 billion.

The Russian ruble’s journey has been tumultuous since Russia’s invasion of Ukraine in February 2022. After hitting a record low of 120 to the dollar in March 2022, it rebounded to a seven-year high in the subsequent months, thanks to capital control measures by the central bank and a surge in export revenue. However, the recent challenges, including Western sanctions and changes in trade dynamics, have led to a renewed decline, placing additional strain on the currency.

Read More: Being cheap: It’s Not About Financial Savings

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currenciesfactory1 · 9 months

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Impact Of Economic Policies On Business: 10 Facts You Need To Know

Economic policies on business refer to government actions that influence a country's economic environment, including taxation, trade regulations, monetary policies, and incentives. These policies can impact business operations, growth, and overall economic stability.The intricate interplay between economic policies and the business landscape has long been a subject of fascination for economists, business owners, and policymakers alike.

The impact of economic policies on business is undeniable, shaping everything from market conditions to consumer behavior. Investors, entrepreneurs, and business owners must grasp the massive impact of these restrictions. The 10 Essential Facts You Need to Know About the Impact of Economic Policies on Businesses are covered in this post.

Economic Policies And Business Landscape

Explanation Of Economic Policies:

Economic policies encompass a range of measures adopted by governments to regulate and influence their country's economic performance. These policies can be broadly categorized into several key types:

Monetary Policies: These policies are enacted by central banks and focus on controlling the money supply and interest rates. The central bank's decisions regarding interest rates impact borrowing costs, affecting businesses' access to capital and consumer spending behavior.

Fiscal Policies: Fiscal policies involve government decisions about taxation and government spending. Lowering taxes can stimulate consumer spending and business investments, while increased government spending can boost demand for goods and services.

Trade Policies: Trade policies encompass international trade regulations, tariffs, and trade agreements. They significantly affect businesses engaged in import/export activities, as changes in tariffs or trade agreements can alter the cost of goods and the competitiveness of domestic industries.

Regulatory Policies: Regulatory policies pertain to rules and regulations governing business operations. These include environmental regulations, labor laws, health and safety standards, and more. Compliance with these policies can impact business costs and operational efficiency.

Influence Of Economic Policies On The Business Environment:

The economic policies adopted by governments wield substantial influence over the business environment, often shaping its dynamics and growth prospects. Here's how these policies impact businesses:

Investment Climate: Monetary policies, such as interest rate adjustments, can impact businesses' decisions to invest in expansion or new ventures. Lower interest rates might encourage borrowing for investment, while higher rates can lead to more cautious investment strategies.

Consumer Behavior: Fiscal policies like tax cuts or stimulus measures can directly influence consumer disposable income. When consumers have more money to spend, businesses across various sectors experience increased demand for goods and services.

Market Competitiveness: Trade policies play a crucial role in determining the competitiveness of domestic industries in the global market. Tariff reductions through trade agreements can provide businesses with access to larger markets and foster international growth.

Operational Costs: Regulatory policies impose standards that businesses must adhere to in their operations. Compliance with these policies can lead to additional costs, impacting profit margins, but can also enhance a business's reputation for responsible practices.

Supply Chain Impact: Trade policies, especially those related to imports and exports, can disrupt supply chains. Businesses relying on global suppliers may experience fluctuations in costs and availability due to changes in trade regulations.

Fact 1: Monetary Policy

Monetary policy stands as a pivotal instrument within a country's economic framework, wielding considerable influence over business dynamics. Monetary policy is the control of the money supply and interest rates by a central bank to promote economic stability and growth. Multidimensional economic governance profoundly affects business environments.

Definition And Role Of Monetary Policy:

Monetary policy guides a nation's economy. Open market activities, reserve requirements, and discount rates help it achieve economic goals. Generally, the primary goals include curbing inflation, stimulating employment, and fostering sustainable economic expansion. By adjusting the availability of money and credit, monetary policy exerts a substantial influence on the overall business landscape.

How Changes In Interest Rates Affect Borrowing And Investment By Businesses:

Interest rates, manipulated through monetary policy, wield substantial influence over the financial decisions of businesses. When central banks alter interest rates, it triggers a domino effect across the business realm. Lowering interest rates encourages borrowing, as the cost of capital decreases. This prompts businesses to undertake more investments, expand operations, and innovate. Conversely, higher interest rates can deter borrowing, potentially stalling business growth and investment.

Case Studies/Examples Illustrating The Impact Of Monetary Policy On Businesses:

Concrete instances of how monetary policy translates into real-world business consequences provide valuable insights into its impact. Consider the aftermath of the 2008 financial crisis when central banks globally slashed interest rates and infused liquidity into the market. This decisive action facilitated businesses' access to capital at lower costs, spurring investments and aiding in the recovery process.

Conversely, during periods of tightened monetary policy, like the 'Volcker Shock' in the early 1980s, businesses faced heightened borrowing costs, leading to reduced investments and, in some cases, contraction.Understanding the intricate relationship between monetary policy and businesses is imperative for entrepreneurs, investors, and policymakers alike. These examples underscore the undeniable role of monetary policy in shaping the fortunes of businesses, underscoring the need for a keen awareness of its mechanics and repercussions.

Fact 2: Fiscal Policy

Fiscal policy is a crucial tool that governments around the world employ to manage their economies. It refers to the use of government spending and taxation to influence economic activity, particularly in terms of aggregate demand and overall economic growth. By altering the levels of government expenditure and taxation, fiscal policy aims to stabilize the economy, encourage investment, and promote sustainable growth.

Definition And Role Of Fiscal Policy:

Fiscal policy involves the government's decisions regarding its expenditures and revenues with the intent of achieving specific economic objectives. This policy can be expansionary or contractionary, depending on the prevailing economic conditions. During periods of economic downturns, governments might increase spending and lower taxes to boost demand and stimulate economic activity. In contrast, governments may cut expenditure and raise taxes to cool the economy during strong inflation or growth.

How Changes In Taxation And Government Spending Impact Business Operations:

Changes in taxation and government spending can significantly impact the operations of businesses. Taxation directly affects a company's profitability by influencing its expenses and overall financial health. Alterations in tax rates can influence consumers' purchasing power and disposable income, consequently affecting demand for goods and services. For businesses, changes in tax policies can lead to shifts in production costs, pricing strategies, and investment decisions.

Government spending plays an equally critical role. Increased government spending, particularly in sectors related to infrastructure, healthcare, and education, can create opportunities for businesses to provide goods and services required for these projects. This injection of demand can lead to increased production and employment in relevant industries.

Case Studies/Examples Illustrating The Impact Of Fiscal Policy On Businesses:

The Great Recession (2007-2009): During this period of economic downturn, many governments implemented expansionary fiscal policies to stimulate economic activity. The American Recovery and Reinvestment Act of 2009, for instance, involved significant government spending on infrastructure projects and tax cuts, indirectly aiding industries involved in construction, manufacturing, and technology.

Austerity Measures in Europe: In contrast to expansionary policies, some European countries implemented austerity measures in response to the Eurozone debt crisis. These measures involved substantial cuts in government spending and increases in taxes. The resulting decrease in consumer spending and demand had negative repercussions for numerous businesses, leading to closures, layoffs, and decreased economic growth.

COVID-19 Pandemic Responses: The global response to the COVID-19 pandemic included various fiscal measures. Governments introduced stimulus packages, tax breaks, and financial assistance to businesses in sectors most affected by lockdowns and reduced consumer activity. These interventions aimed to prevent widespread business closures and maintain economic stability during the crisis.

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