Russian President Vladimir Putin has said that Western sanctions imposed on Russia over its invasion of neighboring Ukraine have failed.
On Monday, Putin said that the West is “expected to quickly upset the economic-financial situation, causing panic in the markets, the collapse of the banking system and the shortage of stores.” “.
He added that the “blitzkrieg strategy had failed” and instead led to the “recession of the Western economy”.
The Russian leader spoke on television during a video call with top economic officials.
Western countries have imposed unprecedented sanctions on Russia’s financial and corporate systems since the country sent troops into Ukraine on February 24 with a so-called “special military operation”. separate”.
Putin noted that “Russia has withstood unprecedented pressure,” noting that the ruble has strengthened and the country recorded a historically high trade surplus of $58 billion in the first quarter of the year. .
Instead, he argues that sanctions have backfired against the United States and its European allies, accelerating inflation and leading to a drop in living standards.
Mr. Putin acknowledged the sharp rise in consumer prices in Russia, saying that consumer prices had increased by 17.5% year-to-date and directed the government to index wages and other payments to cushion the impact. of inflation to income.
Putin said that Russia should use its budget to support the economy and liquidity in terms of contracting lending activities, although the central bank’s interest rate cuts will make lending activities difficult. cheaper.
He also said that Russia should speed up the process of using the national currency in foreign trade under new conditions.
The World Bank said it expected the economy to shrink by more than 11% this year.
Need to ‘adapt’
The Central Bank of the Russian Federation more than doubled its prime interest rate to 20% on February 28 when the first wave of sanctions hit, before cutting it to 17% on April 8. will lower it further at the next board meeting. on April 29.
“We have to be able to lower our key interest rates faster,” Central Bank Governor Elvira Nabiullina said on Monday. “We have to create conditions to increase the availability of credit to the economy.”
Although inflation in Russia has surged to its highest level since early 2002, the Central Bank “will not try to lower it in any way – this will prevent business from adapting”. Nabiullina said.
The current spike in inflation is due to low supply, low demand, and the Central Bank aims to bring it back to its target of 4% by 2024 as the economy adapts to Western sanctions, she said. said, speaking in the House of Commons.
“The period when the economy can live on reserves is finite. And already into the second and third quarters, we will enter the phase of structural transformation and look for new business models,” said Nabiullina.
She also said Moscow was planning to take legal actions against the freezing of gold, foreign exchange and assets belonging to Russian residents, adding that such a step would need to be thought through. careful.
Foreign sanctions have frozen about $300 billion of the roughly $640 billion Russia has in its gold and foreign exchange reserves.
Sanctions mainly affect financial markets, “but now they will start to increasingly affect the economy,” Nabiullina said.
“The main issues will relate to restrictions on imports and foreign trade logistics, and in the future restrictions on exports.”
She said that Russian companies will need to adapt.
“Russian manufacturers will need to find new partners, logistics or switch to production of products of previous generations,” she said.
Exporters will need to find new partners and logistics arrangements and “all of this will take time,” Nabiullina said.
She said the Central Bank is looking at making it more flexible for exporters to sell foreign exchange earnings.
In February, Russia ordered export companies, including some of the world’s biggest energy producers from Gazprom to Rosneft, to sell 80% of their foreign exchange revenue in the market due to the potential for interference. Central Bank money market access is restricted.
Nabiullina said the bank may slightly reduce the terms of the required transaction time and volume.
Promsvyazbank analysts said Nabiullina’s comments were “directly or indirectly aimed at preventing the ruble from rising”.
But the Russian currency extended its gains on Monday, solidly to 81.4025 against the euro, a level last seen on April 8, supported by upcoming tax payments that should boost Export-focused companies convert foreign exchange revenue into rubles to meet their liabilities.