“The period in which the economy can live on the reserves is finite,” said central bank governor Elvira Nabiullina on Monday. A phase of structural change and the search for new business models will begin as early as spring and summer. So far, the sanctions have primarily had an impact on the financial market. “But now they will increasingly affect the economy as well,” Nabiullina warned.
The main problems are probably the import restrictions and the more difficult logistics in foreign trade. Export restrictions are also likely to have an increasing impact. “Russian manufacturers will have to look for new partners and logistics options or switch to the production of products from previous generations,” said Nabiullina.
“All this will take time”
The exporters, in turn, would have to look around for new customers. “All of this will take time,” said the central banker. Nabiullina had recently said that the country’s economy was in an “extreme” situation in view of the sanctions. “We all would have wished that that hadn’t happened,” she was quoted as saying, which recently fueled rumors that Nabiullina would want to resign in protest against the war.
And because a large number of foreign companies had quickly turned their backs on the country and business activities thus disappeared, this also means an increase in unemployment: A loss of 200,000 jobs is feared for the capital Moscow alone, as Moscow Mayor Sergei Sobyanin said on Monday. The city administration wants to support the unemployed with training and socially important tasks, Sobyanin wrote in his blog.
17.49 percent inflation rate
All of this is taking place in a wave of inflation – because central bank boss Nabiullina is not giving the all-clear on inflation either. It will take until 2024 for the inflation rate to reach the target of four percent again. At 17.49 percent, it is currently at its highest level in more than 20 years, as almost everything has become more expensive since the Russian invasion of Ukraine began – from sugar to vegetables to smartphones and clothing.
Tests with digital ruble
The central bank is considering making exporters’ sale of foreign exchange proceeds more flexible, Nabiullina announced. So far, they have had to convert 80 percent of their foreign exchange earnings into the national currency, the ruble. The issue of digital rubles should also be tested. This should enable Russians to make transfers between digital wallets. The first pilot projects are scheduled to start in the second half of the year.
In response to the sanctions, the Russian central bank more than doubled its key interest rate to 20 percent. However, this month it lowered it to 17 percent. Russia invaded Ukraine on February 24. Western countries then imposed sanctions that were tightened several times. For example, Russia was largely cut off from the international payment system SWIFT, and trade in high technology, for example, was severely restricted.