Sanctions to begin affecting Russian economy says Central Banker Governor Nabiullina

Russia’s economy cannot survive indefinitely on its financial reserves and will have to transform itself to deal with the impact of international sanctions, Central Bank Governor Elvira Nabiullina said on Monday.

In her most significant speech since Russia sent its forces into Ukraine on Feb. 24, Nabiullina said it would take until 2024 to bring inflation back to its 4% target.

“The period when the economy can live on reserves is finite. And already in the second and third quarter we will enter a period of structural transformation and the search for new business models,” she said.

Sanctions had mainly affected the financial market, “but now they will begin to increasingly affect the economy,” she said.

“The main problems will be associated with restrictions on imports and logistics of foreign trade, and in the future with restrictions on exports.”

She said Russian companies would need to adapt.

“Russian manufacturers will need to search for new partners, logistics, or switch to the production of products of previous generations,” she said.

Exporters would need to look for new partners and logistical arrangements and “all this will take time”, said Nabiullina.

She outlined several measures to help the economy adapt.

The central bank was considering making the sale of forex proceeds by exporters more flexible, she said, and was also testing the issuance of digital roubles to enable Russians to make transfers between digital wallets.

Pilot operations associated with that project were planned in the second half of the year, she said.

The Russian central bank more than doubled its key interest rate to 20% when international sanctions hit, but then cut it this month to 17%, flagging a challenging economic environment and a slowdown in inflation.