The Russian economy is entering a period of major adjustments to cope with the impact of the sanctions placed on Moscow by the US and its allies, Elvira Nabiullina, the head of the country’s central bank, says.
“Our economy is entering a difficult period of structural changes associated with sanctions. As I said, sanctions primarily affected the financial market, but now they will begin to increasingly affect the economy,” Nabiullina said, speaking in the State Duma on Monday.
According to the official, Russia still has reserves to support the economy, but they won’t be able to sustain it much longer, especially after roughly half of them were frozen abroad by sanctions.
“The period when the economy can live on reserves is over. And already in the second – beginning of the third quarter, we will enter a period of structural transformation and the search for new business models,” she said.
Nabiullina noted that while Russia still has the opportunity to use about half of its reserves (around $300 billion), these consist largely of gold, yuan, and IMF drawing rights, which is of no help in managing the situation with the currency on the domestic market.
The official praised the measures that Russia has already introduced to support the economy amid sanctions, including switching to its own financial messaging system, SPFS, after the country was cut off from SWIFT in March.
“When the threat of disconnection from SWIFT first appeared in 2014, we developed the SPFS, which operates according to the SWIFT standards. Foreign participants interested in working with Russian partners can join and are already joining it. At the moment, 52 foreign organizations from 12 countries have joined the SPFS,” she said.
Nabiullina stressed that sanctions cut off most of the Russian economy from settlements in reserve currencies, the US dollar and the euro, which made it crucial for Russia and partners to develop payments in national currencies.
“We are not starting from scratch here either. We have already launched and developed such bilateral projects with a number of countries. Now we are negotiating with partners in different countries in order to normalize the situation with payments as soon as possible,” she explained.
The official also noted the positive effect that the rise in the central bank’s key rate had on the economy under the sanctions pressure. According to her, the 20% rate introduced last month resulted in a rapid deceleration of the inflation jump that occurred in March, which enabled the regulator to reduce the rate to 17%.
Nabiullina stressed that the central bank will not attempt any drastic measures to further reduce inflation, as it would prevent the economy from coping with the new realities.
“We will not try to lower [inflation] by drastic measures. This would prevent businesses from adapting… and we definitely need to cope with a period of adaptation,” she said.
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