May 26, 2022

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The Russian Central Bank is rushing to limit the consequences of strict sanctions

The Russian Central Bank is rushing to limit the consequences of strict sanctions

(Reuters) – Russia’s central bank on Sunday announced a series of measures to support domestic markets as it scrambled to manage the fallout from harsh Western sanctions that widened at the weekend in response to Moscow’s invasion of Ukraine.

The central bank said it will resume buying gold in the domestic market, launch a borderless repurchase auction and ease restrictions on banks’ open foreign currency positions. It also increased the range of securities that could be used as collateral for loans and ordered market players to reject offers from foreign clients to sell Russian securities. Read more

The central bank did not respond to a Reuters request for comment.

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The moves came after Western allies tightened sanctions on Saturday, took action to remove major Russian banks from the main global payments system SWIFT, and announced other measures to limit Moscow’s use of a $630 billion war fund to undermine sanctions. Read more

The new set of sanctions is likely to deal a devastating blow to the Russian economy and make it difficult for Russian banks and companies to access the international financial system. The ruble fell nearly 30% to an all-time low against the dollar on Monday.

Russians waited in long queues outside ATMs on Sunday, worried that new Western sanctions over Moscow’s invasion of Ukraine would lead to cash shortages and disrupt payments.

“Banks in Russia have already started operating over the weekend…inflation will immediately increase dramatically and the Russian banking system is likely to be in trouble,” said Jeffrey Halley, senior market analyst at Asia-based OANDA.

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Nomura analysts said the West’s new retaliatory measures against Russia are likely to have broader global repercussions.

“These sanctions from the West are likely to harm trade flows out of Russia (about 80% of foreign currency transactions handled by Russian financial institutions are denominated in US dollars), which will also hurt the growth prospects of Russia’s major trading partners including Europe and lead to further pressures. Inflationary inflation and the risk of stagflation, we believe,” analysts wrote in a note to clients.

Energy major BP has opened a new front in the West’s campaign to isolate the Russian economy, with its decision to divest its stake in state oil company Rosneft. (ROSN.MM) At a cost of up to $25 billion, it is the most aggressive move yet by a company in response to Moscow’s invasion of Ukraine. Read more

Russian business operations of other Western companies are also in the spotlight as governments tighten the financial noose on Moscow Read more

The European Central Bank, which oversees the lenders, said on Monday that many European subsidiaries of Sberbank Russia, which are mostly owned by the Russian government, are failing or likely to fail because of the reputational cost of the war in Ukraine.

In several announcements on Sunday, the Russian Central Bank sought to ensure financial stability. It said it would resume buying gold in the local market from February 28.

It added that customers of sanctioned banks will not be able to use their bank cards outside Russia, and that cards issued by sanctioned banks will not work on Google Pay or Apple Pay.

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It also ordered market players to reject attempts by foreign clients to sell Russian securities, according to a central bank document seen by Reuters.

That could complicate plans for sovereign wealth funds in Norway and Australia, which have said they intend to end exposure to listed Russian companies. Read more

In an effort to inject liquidity into the financial system, the central bank said there would be no limit in the “setting” repurchase auction it plans to hold on Monday, and added that the banking system remained stable after new sanctions targeting Russia’s finances. institutions.

The central bank said bank cards were working as usual and that customers’ funds could be accessed at any time. It said it would significantly increase the range of securities that can be used as collateral for loans from the central bank. Read more

The central bank also said it is temporarily easing restrictions on foreign exchange positions open to banks after the sanctions. It said in a statement that the measure, which allows banks with “external circumstances” to keep their positions above official limits, will be in effect until July 1.

The central bank said it would continue to monitor changes in currency conditions “in order to ensure the normal functioning of the currency, money markets and financial stability of lending institutions”. Read more

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reporting by the Moscow office; Written by Paritosh Bansal and Shri Navaratnam; Editing by Stephen Coates and Jacqueline Wong

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