“The period in which the economy can live on stocks is finite.” Central Bank warns of structural changes

Elvira Nabiullina, Governor of the Central Bank of the Russian Federation, said that due to the imposition of sanctions, the Russian economy will soon face a difficult period of structural change.

“The period in which the economy can live on reserves is limited. And already at the beginning of the II – III quarter, we will enter a period of structural transformation and the search for new business models.

Nabiullina noted that the sanctions primarily affect the financial market, but then they will increasingly affect the economy as a whole.

At the same time, the Central Bank of Russia will in no way reduce inflation.

“This will prevent businesses from adapting, where it is now more difficult and expensive to re-supply the necessary imported components, and this will inevitably affect the price of the final product,” said Nabiullina.

According to him, the rise in the prices of individual goods will be largely associated with low supply, but inflation should not be uncontrollable, devaluing incomes and savings. The Central Bank expects to return to the target inflation rate of 4% in 2024.

“We will follow a monetary policy that will bring inflation back to the target within a reasonable, predictable time frame, but not too suddenly,” Nabiullina said.

He also said that the Bank of Russia has yet to abandon all elements of currency control.

“We are taking really tough measures in terms of currency regulation, but currency control will need to be adjusted. We cannot abandon all elements of currency control in the near future. “It needs to be adjusted to cover risks but not interfere with normal activities,” he said.

“The banking system is standing still”

According to the head of the Central Bank, the Russian banking system is able to stand firm and withstand serious blows, despite the recent pandemic crisis.

“At the beginning of 2022, the capital stock of banks, taking into account the accumulated buffers and macro appropriations, reached about 7 trillion rubles, which is more than half of the total capital. This is currently sufficient to cover 10% of loan losses.”

At the same time, Nabiullina noted that the margin of safety of the banking system is unevenly distributed. According to him, the Central Bank will take this into account when developing support measures.

Central Bank gold and foreign exchange reserves

Nabiullina said that under the sanctions, the Central Bank could dispose of about half of its reserves.

“This is gold, yuan and other assets that are not subject to sanctions risk. But they do not make it possible to manage the situation with foreign currency in the domestic market,” he said.

According to that, It is too early to discuss the prospects for foreign exchange reserves. Bank of Russia.

“The list of reserve currencies is limited, countries issuing such liquid reserve currencies have taken unfriendly measures and frozen our use. We will have to look to the future. “So far, I’m having a hard time bidding specifically on prospects,” Nabiullina said.

Analogue SWIFT distribution

Already 52 foreign organizations from 12 countries It joined the Financial Message System as an analogue of SWIFT.

“When the threat of disconnection from SWIFT first appeared in 2014, we developed the SPFS of the Central Bank of Russia, which worked according to SWIFT standards. Foreign participants who want to work with Russian partners can and are already participating in it,” said Nabiullina.

He stressed that sanctions against Russian banks and companies have cut much of the Russian economy from settlements in reserve currencies.

“Developing payments in national currencies is important to us. Here, too, we are not starting from scratch. We have already initiated and developed such bilateral projects with many countries. “We are now meeting with partners in different countries to normalize the situation as soon as possible with payments and settlements,” he said.