Bank of Russia governor says she is bracing for more sanctions

MOSCOW: Bank of Russia Governor Elvira Nabiullina, who helped the Kremlin absorb the blow from sweeping sanctions over the invasion of Ukraine, said she’s preparing for a strengthening of penalties aimed at the country’s economy.

The restructuring of Russia’s economy is proceeding “quite quickly” as businesses adapt to the sanctions, Nabiullina said in an interview with RBC news published Monday. There’s a temptation to think “we are, as they say, knee-deep in the sea” after weathering the initial storm, though “we must be prepared for increased sanctions pressure,” she said.

The US Treasury announced Friday that it would use sanctions against banks that facilitate deals in which Russia procures semiconductors, ball bearings and other equipment necessary for its war machine — even if they’re unaware they’re doing so. The European Union backed a 12th package of sanctions against Russia on Dec. 15.

In the lengthy interview that made no mention of Ukraine or of the war that triggered the unprecedented sanctions, Nabiullina said cross-border payments remain “a problem for many businesses.” There are also “very serious” challenges in developing long-term financing, she said.

“We cannot say that we have answered all the challenges,” Nabiullina said. Still, she said she’s “quite positive about the development of the financial sector, its sustainability.”

The governor said Russia's central bank will start buying foreign currency if oil prices rise to $88-$90 per barrel. She said the bank would still sell foreign currencies in January and the sales volumes would be announced soon.

In August, the bank stopped buying foreign currencies until the end of the year to avoid aggravating pressure on the rouble, which tumbled past 100 to the U.S. dollar in August and September.

It has since recovered, and was trading at around 92 on Monday. "Whether we are a net (forex) seller or a net buyer depends largely on the price of oil," Nabiullina said Brent oil futures settled at $79.07 per barrel on Friday.

Russian President Vladimir Putin introduced in October mandatory sales of foreign exchange proceeds for some exporting companies to stabilise the rouble. At the time, the rouble was plumbing more than 18-month lows against the dollar. The Russian currency has been under pressure from capital outflows and limited foreign currency supply.

The mandatory forex sales are effective until March 2024. Nabiullina said the measure should be temporary and that the bank does not expect sharp changes on the forex market when it expires.

She also said the central bank would need two to three months to make sure inflation was steadily declining before taking any decision on interest rate cuts. She said Russian banks could see profit of just over 2 trillion rubles in 2024 following a record result in 2023.

"We currently estimate the banking sector's profit will be slightly more than 2 trillion rubles next year. Margins may decrease slightly due to high rates, especially since high rates are passed on to deposits more quickly than to borrowers and lenders. But economic activity is developing nevertheless, positive growth rates [are being seen] and they will have an opportunity to generate profit," she said.

The sector earned 3.2 trillion rubles since the beginning of the year, however profit was overstated by around 300 billion rubles from negative revaluation of OFZ bonds, the Central Bank has said. It said in a report at the beginning of December that the sector's profit for 2024 might be 2.1 trillion-2.6 trillion rubles.