Putin said on Monday that the West “expects to quickly reverse its financial situation, cause panic in the markets, collapse of the banking system and shortages in stores.” He added that “the economic blitz strategy has failed” and instead led to “a deterioration of the economy in the West”. The Russian leader spoke in televised statements during a video conference with top financial officials. Western countries have imposed unprecedented sanctions on Russia’s corporate and financial system since it sent troops to Ukraine on February 24 in what it calls a “special military operation.” Putin noted that “Russia has withstood unprecedented pressure”, arguing that the ruble has strengthened and that the country has recorded a record high trade surplus of $ 58 billion in the first quarter of the year. Instead, he argued, sanctions against the United States and its European allies failed to accelerate inflation and lead to a decline in living standards. Putin acknowledged a sharp rise in consumer prices in Russia, saying they had risen 17.5 percent year-on-year since April, and urged the government to adjust wages and other payments to mitigate the impact of inflation on incomes. Putin said Russia should use its budget to support the economy and liquidity amid shrinking lending, although lower central bank interest rates will make lending cheaper. He also said that Russia should speed up the process of using national currencies in foreign trade under the new conditions. The World Bank has said it expects the economy to shrink by more than 11 percent this year.
Need for “adjustment”
The Central Bank of the Russian Federation more than doubled its key interest rate to 20 percent on February 28 as it hit the first wave of sanctions before dropping it to 17 percent on April 8. It is expected to reduce it further at the next board meeting on April 29. “We need to be able to lower the key interest rate faster,” Central Bank Governor Elvira Nabiulina said on Monday. “We need to create conditions to increase the availability of credit to the economy.” Although inflation in Russia has accelerated to its highest level since early 2002, the central bank “will not try to reduce it in any way – it would prevent businesses from adjusting,” Nabiullina said. The current rise in inflation is driven by low supply rather than high demand, and the central bank aims to bring it to its target of 4% in 2024 as the economy adjusts to Western sanctions, he told parliament’s lower house. “The period when the economy can live with stocks is over. “And already in the second and third quarters, we will enter a period of structural transformation and the search for new business models,” said Nabiullina. He also said that Moscow was planning to take legal action to block Russian gold, foreign exchange and assets belonging to Russian residents, adding that such a step would have to be scrutinized. Foreign sanctions have frozen some $ 300 billion of Russia’s $ 640 billion in gold and foreign exchange reserves. The sanctions have mainly affected the financial market, “but now they will start to affect the economy more and more,” Nabiullina said. “The main problems will be related to restrictions on imports and foreign trade and in the future to restrictions on exports.” He said Russian companies would have to adjust. “Russian manufacturers will have to look for new partners, logistics or turn to the production of products of previous generations,” he said. Exporters will have to look for new partners and logistics and “all this will take time,” Nabiullina said. He said the central bank was considering making it more flexible to sell forex revenue from exporters. In February, Russia ordered export companies, including some of the world’s largest energy producers from Gazprom to Rosneft, to sell 80 percent of their foreign exchange earnings, as the central bank’s ability to intervene in foreign exchange markets was limited. . The bank can ease the terms of time and volume of mandatory sales, Nabiullina said. Nabiullina’s comments “directly or indirectly aim to prevent the ruble from stabilizing,” said Promsvyazbank analysts. However, the Russian currency extended gains on Monday, stabilizing at 81.4025 for the euro, a level last seen on April 8, aided by forthcoming tax payments that will push export-focused companies to convert foreign exchange earnings. in rubles to meet their obligations.
