Russia is in a state of “technical default”, and central bank reserves have halved. But Putin is defying the EU over sanctions

While in Brussels a new package of sanctions against RussiaAnd put it in He underestimates and tries to reassure his citizens: the Russian economy It’s settling down As well as inflation, with the ruble returning to its pre-starting levels war at Ukraine. For Putin, the “blitzkrieg economic war” that the West launched against Russia through sanctions I failedEven worse: the same sanctions do more harm than good to Russia A decline in living standards in European countries.

but in fact Penalties International from Europe and the United States have a significant impact on the economic system of the Russian Federation and central bank From the country will not be able to stop the consequences for citizens for a long time. Elvira Nabiullina, the Governor of the Central Bank of Russia, explained during her speech in the State Duma (the lower house of the Russian parliament): sanctions after they hit the financial market, It will now have a stronger effectOn the Russian economy she will have to deal with in recent months structural changes To adapt to the new reality. The scenario in the coming months looks difficult for the country’s economy.


As soon as Putin’s “special operation” began in Ukraine, and thus the first package of sanctions by the West began, the Central Bank of Russia suddenly raised prices by ten points, bringing them to 20%. Now, Nabiullina, in an effort to limit the damage to Russian wallets, has announced a cut in interest rates even at the expense of allowing inflation, which had already jumped in March by 17.4%. The governor made it clear that the inflation containment target is postponed to 2024, and interest rates may be cut as early as the end of April. The rules for exporters will then be simplified.

Impact on GDP

For Moscow, international analysts expect a twofold drop in GDP as a result of the war and sanctions, by up to -15%. The World Bank is talking about -11%. The International Monetary Fund forecasts a decline in Russia’s GDP of about 8.5% in 2022 and a further decline of 2.3% in 2023. It is clear that much will depend on the duration of the war and the international Sazni. Anyway, Russia is burning the growth of the past fifteen years.


Known as a “hawk” in monetary policy and viewed favorably by Western markets and analysts, Nabiullina is one of the few women (she is Tartary) to hold a high government position. And according to what Bloomberg wrote, in mid-March, he had offered his resignation, which was rejected by Putin, who confirmed it for another five years. His speech in the State Duma (the lower house) is the first detailed and detailed speech since the invasion of Ukraine.


Putin is pushing for the central bank to increase support for the domestic economy. But it is not that simple. The first package of sanctions launched by the European Union and the United States blocked the foreign exchange reserves held by the Russian Central Bank in current accounts in different countries. In total, the reserves of the Central Bank of Russia amounted to 640 billion dollars, about 300 billion dollars were frozen in foreign accounts and, accordingly, were frozen. Thus, the ruler’s scope of action was at least halved. WLn Alternative investment of reserves in reserve currencies – explained Nabiullina – has not yet been taken because the list of liquid currencies It’s limited It was formed by countries hostile to Moscow (euro, dollar, yen, etc.).

virtual spectrum

To make matters worse, there is the specter of sovereign debt default which is becoming more and more likely day by day. On April 4, Russian government bond coupons in the amount of $649.2 million expired, the Ministry of Finance tried to compensate investors with rubles instead of dollars as expected in the contract, but international creditor banks refused to accept payment. So Russia is already in a state of “technical default”. Under the “grace period” rules, Russia has 30 days (that is, the period ends on May 4) to fix and redeem dollar coupons. If it does not, then the default mode becomes effective and real.

Russia’s failure will also drag domestic companies and Russian citizens into a deep pit of impoverishment. Thus, industrialists and large companies are looking for a way, according to local press reports, to avoid the state from defaulting with technical solutions to repay bonds in euros through designated accounts for which payments can be made or securities can be repurchased by the Ministry of Finance. financing.

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