October 3, 2022

Wire Service Canada

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Nabiullina (Central Bank of Russia): “The sanctions are amazing, we can no longer live on reserves.” But Putin: “No, the West’s blitzkrieg failed”

International sanctions, having hit the financial market, will now “have a stronger impact” on the Russian economy, which in recent months will have to face “structural changes” to adapt to the new reality. The Governor of the Central Bank of Russia, respected technocrat Elvira Nabiullina, even in technical language described a difficult picture of the country’s economy in the coming months and announced a rate cut even at the expense of allowing inflation. Already jumped by 17.4%, Moscow international analysts expect. After the war and sanctions. A double-digit drop in GDP, the latest being the World Bank talking about -11%.

Sanctions have begun to hit the country

The words of the governor, contradicting the picture described by the Kremlin so far, are so much that after a few hours a more reassuring message arrived from President Vladimir Putin: the economy is “stabilizing” and so is inflation, with the ruble returning to pre-war levels in Ukraine. In fact, he re-launched the “economic blitzkrieg” launched by the West against Russia through sanctions “has failed”, while the sanctions themselves are already causing a “regression in living standards” in European countries. If necessary, it will use the state budget to support the stressed economy. Known as a hawk on monetary policy and viewed favorably by Western markets and analysts, Nabiullina is one of the few (and Tartary) women to hold high government positions. And according to what Bloomberg wrote, in mid-March, she had offered her resignation, but Putin rejected it, and confirmed it for another five years. His speech in the State Duma (the lower house) is the first detailed and detailed speech since the invasion of Ukraine.

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The central bank cuts interest rates 300 basis points to 17%

Legal action against penalties

He said that after a possible default in government bonds in euros (the grace period expires on May 4), Russia serves a block of about half of its non-golden reserves and the $600 billion yuan. Conservative Despite the fact that the dollar’s weight on total central bank reserves has fallen to 11% since the invasion of Crimea, the euro makes up more than a third in addition to the pound and yen. He explains that an alternative investment of reserves in reserve currencies has not yet been taken, since the list of liquid currencies is “limited” and consists of countries hostile to Moscow (euro, dollar, yen, etc.). And this despite Putin’s demand once again to “accelerate” the transition from the dollar “to the ruble and other national currencies” in international transactions.

There is no decision on where to invest the reserves

But at the moment, due to the spread of conflict and international measures, Russia has to deal with a series of import restrictions, and in the future also with more “bans on its exports” (the European Union is about to implement sanctions on oil), as well as abandon price controls. The target to contain inflation has been pushed back to 2024, the governor explains, and rates will be cut after the post-invasion peak to hold capital (from 9.5 to 20%) perhaps already at the meeting at the end of April. The rules for exporters will then be simplified. The entire economic structure of the country will have to reposition itself and the producers “find new partners or switch to previous generation products” but this will take some time. In particular, industrialists and large corporations are looking for a way to avoid the country’s default through technical solutions to repay bonds in euros through designated accounts that can be paid for or securities can be repurchased by the state. Ministry of Finance. An announcement of this kind of default (which has already affected Russian railways and Scheverstal) will already have long-term consequences for the country’s economy with repercussions of worldwide asset forfeiture and court cases for years.

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