Sanctions Over Russians Affect The Economy

Sanctions over Russians have affected the financial market, but now they will start to impact the real economy increasingly more significantly,” the governor said.

The rubble may not be showing it, but Western economic sanctions imposed against Russia are working.

In revealing testimony before the Duma parliament, the head of the Central Bank of Russia (CBR) told the country’s lawmakers she had to throw everything but the kitchen sink just to prevent a full-blown run on the banking system.

“The sanctions imposed against Russia affected the situation in the financial sector, spurred the demand for foreign currencies, and caused fire sales of financial assets, a cash outflow from banks, and surging demand for goods,” said Elvira Nabiullina in prepared remarks first published in English on Friday.

The frank assessment of Russia’s economic problems contrasts sharply with political attacks launched against the current U.S. administration for a sanctions policy that failed to force Vladimir Putin to the negotiating table.

Presenting the CBR’s annual report to parliament this week, Nabiullina painted a picture to lawmakers of just how grim the situation was that confronted her.

Depositors withdrew 2.4 trillion rubles in the first weeks after the war broke out, eating up a year’s worth of bank profits and a third of its accumulated capital cushion.

Without the imposition of strict capital controls, there would have been “a series of defaults and a domino effect” throughout the financial system, she argued.

“Today’s scale of the regulatory easing is unprecedented,” she admitted, arguing that otherwise easing measures would not have been commensurate to the scale of problems faced.

Since foreign reinsurers are cancelling their contracts with Russian companies, Nabiullina’s central bank was forced to hike the guaranteed capital to the Russian National Reinsurance company 10-fold to ensure there was enough reserves to cover insured losses.