Russia’s economy cannot survive indefinitely on its financial reserves and will have to transform to deal with the impact of international sanctions, Central Bank Governor Elvira Nabiullina said on Monday, pointing to a further rate cut.
In his most significant speech since Russia sent its forces into Ukraine on February 24, Nabiullina said it would take until 2024 for inflation to return to its 4% target.
“The period in which the economy can live on reserves is finite. And already in the second and third quarters we will enter a period of structural transformation and search for new business models”, he said.
The postponement of the bank’s key target underscored the challenge facing one of the world’s most respected central bankers as it tries to stabilize Russia’s economy under the onslaught of Western sanctions.
Nabiullina raised the bank’s key interest rate from 9.5% to 20% on February 28, four days after Russian forces entered Ukraine, but lowered it to 17% on April 8.
On Monday he signaled that he would seek to reduce it further.
“We must be able to lower the key rate faster,” Nabiullina said. “We must create conditions to increase the availability of credit for the economy.”
He also said that Moscow plans to take legal action over the blockade of gold, currency and assets belonging to Russian residents, adding that such a step should be carefully thought through.
Foreign sanctions froze about $300 billion of about $640 billion Russia had in its gold and foreign exchange reserves when it launched what it calls its “special military operation” in Ukraine.
The sanctions had mainly affected the financial market, “but now they will start to affect the economy more and more,” Nabiullina said.
“The main problems will be associated with import restrictions and foreign trade logistics, and in the future with export restrictions,” he added.
He said Russian companies would have to adapt.
“Russian manufacturers will have to look for new partners, logistics or switch to the production of older generation products,” he said.
Exporters would have to find new partners and logistical arrangements and “all of this will take time,” Nabiullina said.
He outlined various measures to help the economy adjust.
She said the central bank was considering making it more flexible for exporters to sell foreign exchange earnings.
In February, Russia ordered exporting companies, including some of the world’s biggest energy producers from Gazprom to Rosneft, to sell 80% of their foreign exchange earnings on the market, as the central bank’s own ability was restricted. to intervene in the foreign exchange markets.
The bank could now ease the terms of the timing and volume of the mandatory sales, Nabiullina said.