Central Bank of Russia Semantics and Policy Shifts
The Governor of the Central Bank of Russia, Elvira Nabiullina, clarified the bank’s stance during a recent board session. The bank continues to enforce restrictions on cash and foreign currency issues, a measure tied to sanctions and unfriendly country responses. Despite these constraints, the dollar remains in active circulation within the Russian Federation. The bank’s assessment indicates that the cash purchase of foreign currency is unlikely to improve in the near term, reflecting a cautious outlook for both individuals and institutions alike.
The unfriendly countries have kept their measures, including prohibitions on importing cash into Russia. Banks are expected to honor the rights of citizens to access funds from previously opened foreign currency accounts, within the set limits. Nabiullina specified a withdrawal cap of 10 thousand, aiming to balance liquidity with the current risk environment.
Room registered A broad view suggests roughly nine out of ten depositors can still withdraw from their deposits under the prevailing restrictions.
The Central Bank implemented a temporary framework for cash transactions, effective from March through September of the current cycle. This framework contemplates the possibility of withdrawing more than ten thousand dollars from foreign currency accounts or deposits at the prevailing market rate on the day of withdrawal. The regulator noted that about 90% of foreign currency accounts in Russian banks hold balances not exceeding ten thousand dollars. For clients with larger sums, the recommendation is to withdraw the balance in rubles at the current rate. While new foreign currency accounts can still be opened, access to funds from them remains restricted during the period of restrictions. Cash would be issued in U.S. dollars, with other currencies converted to dollars at the market rate. Banks will not sell cash to citizens during the prohibitions, though currencies can be exchanged for rubles at any time and in any amount.
Casualities of a Doomsday Scenario
Nabiullina emphasized that even in the worst-case scenario, cash dollars would persist in the country. The Central Bank would continue encouraging the conversion of bank balances into rubles or currencies from friendly nations, a policy aimed at stabilizing the financial system and managing exchange rate pressures.
Remarking on resilience, it was noted that Russian banks had managed the current crisis more effectively than anticipated by the regulator. The central bank estimated that citizens hold substantial cash, dollars, and euros, with a broad estimate of roughly 85 billion dollars in private hands.
The regulator also commented on the broader economic trajectory, suggesting that a recession could unfold over time yet might not be as severe as earlier projections implied. Expected factors include a modest decline in GDP, supported by a restrained drop in exports due to a shift in oil sales toward new markets. The forecast was adjusted to reflect a smaller contraction, with the potential range narrowed to a mid-single-digit impact for the year.
Cheap Loan Facility
During the meeting, Nabiullina announced a monetary policy adjustment: the key interest rate was reduced by 150 basis points to 8 percent per year. The decision hinged on softer growth in consumer prices, contributing to a further slowdown in inflation and providing support for borrowers and the broader economy.
Analysts noted that further reductions might occur in the second half of the year. The Central Bank projected annual inflation to ease toward targets, with expectations for inflation to settle at a lower level in the coming years. Projections suggested inflation could retreat gradually, aligning with a longer-term stabilization path for prices.
In response to these shifts, Sberbank announced adjustments to mortgage programs, including a lower base rate beginning mid-year and a new minimum rate, applying to both new builds and the existing housing market. The changes were designed to improve affordability for homebuyers while the market absorbs the evolving monetary landscape.