Russia’s concerns about Western economic sanctions are rising

Posted on February 28, 2022 17:58Updated February 28th. 2022 06:16 PM

“Sanctions, pressure … panic in the city of Moscow? Number! In the aftermath of strong US and European Union measures against the Russian economy after the invasion of Ukraine, became one of Russia’s major public groups This party bureaucracy, located, challenges with confidence and a smile. “We have already proved resilience. Of course, these western sanctions hurt us. But trust us. Please. We are ready and can recover … avoid these sanctions, “he guarantees.

With eight years of Western sanctions, the Russian economy has certainly proved its resilience since Moscow annexed the Crimean in 2014. But this time, heavy banking sanctions could put the country in financial paralysis. In particular, after the Western decision to partially separate the country from Swift, it effectively separated domestic financial institutions from the international financial trading system. This reduction greatly complicates day-to-day banking operations, even if limited to a particular bank or group.

In addition, Washington has already applied unprecedented strict sanctions to the Central Bank of Russia: a ban on all transactions with this financial institution, effectively fixing assets held in the United States by Americans. To do. Objective: To limit Moscow’s ability to use abundant foreign exchange reserves to buy rubles.

Ruble defense

The severity of these measures has caused a sharp depreciation of the national currency. The ruble surpassed the historical low of 100 rubles at 1 euro against 83.5 at the last official rate on Wednesday, forcing the Central Bank of Russia to intervene. We raised the key rate by 9.5 points and greatly raised it to 20%! As a result, interest rates on the borrowing sector as a whole will rise, and investment in Russia will be delayed a little more.

The central bank preferred not to reopen the Moscow Stock Exchange to avoid further declines in domestic group stocks. Later that day, Vladimir Putin proclaimed a ban on Russian residents from sending currency abroad, the Kremlin announced. In addition, Russian exporters have been ordered to convert 80% of their foreign currency income since the January. Of course, we are targeting major energy companies.

Import costs are rising

If there was no run on the streets of Moscow, there is certainly a source of concern. At the counter, the line is longer than usual as the Russians are trying to cancel their savings. Everyone remembers the crisis of the 1990s, and the public is more concerned about savings than anything else. There is no panic, but spread and anxiety is very real. In countries where debt overhang is already a problem, rising interest rates are not a good sign.

“For example, credit repayment will be a problem, but at the same time, a fall in the ruble will not fail to increase import costs and push inflation a little further,” fears Gregory, a senior private executive. .. group. “Our wind and rain barrels of oil that always save us are certainly the best, unlike 2014. But is the ruble stable for all of that? Hired by a big public bank Ask Arseni, “Without the disasters promised by Westerners, our daily lives would be adversely affected. But authorities, as is often the case in Russia, hide the scope of the problem from us. Will be able to … “