The Russian ruble has fallen to its lowest level against the dollar since the first weeks of the all-out invasion of Ukraine amid new Western sanctions and rising geopolitical tensions.

The ruble hit 110 against the dollar on Wednesday for the first time since March 16, 2022. Before the Russian currency began its war against Ukraine in February 2022, it was trading at around 75-80 against the US dollar.

The latest decline came just days after the U.S. imposed sanctions on Gazprombank, Russia’s third-largest bank, which played a key role in processing payments for remaining Russian natural gas exports to Europe.

Previous rounds of sanctions had spared Russian gas because the European economy was so dependent on it, but now dependence on Russian supplies is far less. The Gazprombank sanctions raise the prospect of a further decline in gas revenues and foreign exchange for Moscow.

The weakening of the ruble threatens to weaken Russians’ purchasing power as the cost of imported goods rises and could cause inflation to rise further.

The country is already struggling with soaring inflation that could rise to 8.5% this year – twice the central bank’s target.

The Borscht Index, an online cost of living tracker that monitors prices for four ingredients needed to make the traditional soup, reports a 20% increase compared to 2023.

Rising inflation prompted the central bank to raise interest rates to 21% last month – the highest in more than 20 years – and another increase is expected in December.

But the weak ruble will also help the Kremlin shore up its budget – which largely comes from energy exports – to finance its war in Ukraine and maintain public spending.

While Europe has significantly reduced its dependence on Russian energy, Moscow has successfully redirected much of its oil exports to markets in China and India.

In a rare official comment on the exchange rate, Russia’s Finance Minister Anton Siluanov suggested that Moscow was content to let the ruble fall, saying Russia’s weak ruble would benefit exporting companies and offset the negative impact of the central bank’s high interest rate.

“I’m not saying whether the exchange rate is good or bad. I’m just saying that the exchange rate today is very, very favorable for exporters,” Siluanov said at a financial conference in Moscow.

Russia’s economy has proven more resilient to international sanctions and the pressures of war than many Western officials expected. But rising military spending and a growing labor shortage as working-age men head to the front or flee are sparking growing concerns in Moscow about the strain on the economy and the long-term feasibility of sustaining a costly conflict.

Almost a third of Russia’s 2024 budget is earmarked for military spending, the highest amount since the Cold War.

Analysts said the country’s economy was beginning to show signs of stagflation – a combination of low growth and high inflation.

In a report published earlier this month, economists at the Institute of Economic Forecasting of the Russian Academy of Sciences said that “a slowdown in economic activity and a deterioration in financial indicators in a number of sectors are becoming increasingly apparent.”

Russian economists Alexander Koljandr and Alexandra Prokopenko argue that the country’s militarization has dampened growth in other sectors of the economy.

“Growth is only noticeable in the military-related sectors. “Everywhere else in the economy, growth is lacking or, at best, anemic,” they wrote in a recent report.