The worst times of the economy have yet to come, according to Elvira Nabiullina, President of the Central Bank. “The second and third quarters of this year will be difficult,” she said at a Joint Duma of committees on the financial market, budget, and taxes, as well as economic policy. She also stated that the CB would guide the transformation of the economy, fight inflation, and enforcement of foreign exchange controls.
STRUCTURAL TRANSFORMATION
New U.S. sanctions will likely have a negative impact on the country’s economy in the coming years, but recent changes to the financial market may help us regain stability soon, – said Elvira Nabiullina.
In her opinion, the biggest problems will come in the coming months. The main issues will be logistics-related: difficulties in the supply of imported goods and components, as well as possible restrictions on exports. During this time, the economy will need to reorganize itself in a new way and find willing partners to establish markets for the sale and supply of products.
The Russian economy is currently doing well, according to Prime Minister Mikhail Mishustin. In the words of Prime Minister Mishustin, economic growth is less than desired but it’s still functional. Furthermore, other countries in Eastern Europe have been expanding and strengthening their ties to Russia.
INFLATION IS HIGH BUT UNDER CONTROL
Prices have increased by 11% since the beginning of the year. However, the forecast for the end of the year is 20 to 25%. To escape sanctions, Central Bank applied a whole package of measures. First, it raised the key rate to 20% per annum and recently lowered it slightly, but left it at a high level: 17%. Second, ruble exchange rates stabilized – for a dollar they give 80 rubles. This is about the same as in mid-February.
As a Central Bank, we’re aware that sanctions may lead to higher prices for certain goods. This is mostly due to low supply, not increased demand, Nabiullina explained.
When asked about reducing inflation, she stated that she was not reducing it at all costs. Balance is the key to this issue. So that prices don’t grow too quickly and businesses have the incentive to develop.
CURRENCY CONTROL WILL BE WEAKENED
Currency control cannot be abandoned entirely at this point. However, we should adjust it to only cover risk and not interfere with normal foreign economic activity. This will require a creative approach. But now we are ready to move forward with some of the changes, including exports of products other than commodities. – explained the president of the Central Bank.
Recently, the Central Bank has had a number of new restrictions and limits for foreign currency purchases and transfers abroad. For instance, a 12% commission on sending funds abroad or limits of 10 thousand dollars. The Central Bank has since lifted some of these constraints. For example, they canceled the 12% commission when buying foreign currency stocks and they allow citizens to send money not only to other countries but also to their own foreign bank accounts. Other changes may be coming soon as well. The ruble exchange rate is strong enough now meaning it doesn’t need to be very strong, and the budget doesn’t really need a very strong national currency either – official sources say.
BANKS ARE GOOD
“The Russian banking system is well-built and can handle tough times”, said Elvira Nabiullina.
Banks in Russia have been accumulating reserves over the last few years, and they are now at $5.9 trillion. In addition, they can borrow money from the Central Bank. Furthermore, they were recently allowed to keep dividends for capital expenditures rather than paying them out to shareholders. Thanks to this policy, banks will be more resilient during an economic crisis.
If a year is not enough to replenish the current trade deficit, Moscow may find itself working with deferred revenue. At the same time, the status of the box is in order. Yes, half of your investments are frozen. But the other half remains: in gold, euros, and cash currency. A total of $300 billion. The government has been able to use this money if needed this year but they have been unlikely to be required as of yet with reduced supplies globally. Even with a multi-trillion ruble surplus in an economy where imported resources remain inexpensive and abundant, some funds are still frozen due to sanctions put in place by the United States.
EXTENSION OF POWERS
The head of Russia’s Central Bank Elvira Nabiullina has been in place since June 2013. Her mandate will expire on June 24, but the Russian president has called for a third term to be granted. The State Duma Committee on Financial Markets approved this decision and it will now go before the full chamber for consideration on Thursday, April 21.
