According to the central bank, the Russian economy cannot live on its financial reserves forever and needs to reposition itself in the face of international sanctions. “The period in which the economy can live on reserves is finite,” central bank governor Elvira Nabiullina said on Monday. A phase of structural change and the search for new business models will begin in the spring and summer. So far, the sanctions have mainly impacted the financial market. “But now they will also increasingly affect the economy,” warned Nabiullina.
The main problems are probably import restrictions and logistical difficulties in foreign trade. Export restrictions are also likely to have a growing impact. “Russian manufacturers will have to look for new partners and logistics options or switch to producing products from earlier generations,” said Nabiullina. Exporters, in turn, would have to look for new customers. “All of this will take time,” said the central banker.
Inflation at 17.5 percent
It’s not all right about inflation. It will take until 2024 for the inflation rate to reach the four percent target again. At 17.49%, it is currently at its highest level in more than 20 years, as almost everything has become more expensive since the start of the Russian invasion of Ukraine – from sugar to vegetables, smartphones and clothes.
The central bank is considering easing the sale of foreign exchange by exporters, announced Nabiullina. Until now, they had to convert 80% of their foreign exchange earnings into the national currency, the ruble. The issue of digital rubles should also be tested. This should allow Russians to make transfers between digital wallets. The first pilot projects are scheduled to start in the second half of the year.
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In response to the sanctions, the Russian central bank more than doubled its interest rate to 20%. However, this month it dropped to 17 percent. Russia invaded Ukraine on February 24. Western countries then imposed sanctions that were reinforced several times. For example, Russia was largely cut off from the Swift international payment system, and high-tech trade, for example, was severely restricted.