Ukraine crisis: Russia scrambles to contain sanctions fallout

The national currency has shed around a quarter of its value against the US dollar since the 'special military operation' in Ukraine

By AFP

Published: Sun 6 Mar 2022, 7:31 PM

Black market fears, problems with online payments and the looming spectre of inflation — Russian officials are scrambling to deal with the effects of sanctions imposed on Russia over its military operation in Ukraine.

On the streets of Moscow, there is little sign of panic — restaurants are open and busy during an extended state holiday that will last through March 8 when the country marks International Women’s Day.

But at ministries and banks, there is growing concern over economic fallout that has seen giant international companies flee Russia and questions raised over the health of the banking sector.

Advertising

The central bank in recent days has taken unprecedented measures, including capital controls, to shore up the struggling economy and Russia’s ruble.

The national currency has shed around a quarter of its value against the US dollar since what the Kremlin has dubbed “a special military operation” in Ukraine began on February 24.

The tanking ruble has revived memories of financial turmoil of the 1990s, when millions of Russians saw their savings evaporate due to currency devaluation and soaring inflation.

For the moment, ensuring basic goods remain affordable and abundant is a key target for authorities.

The trade and industry ministry on Saturday raised alarm over cases of essential foodstuffs being purchased “in a volume clearly larger than necessary for private consumption...for subsequent resale,” pointing to an emerging black market.

To combat bulk-buying, major retailers have decided via their trade organisations to limit the amounts of essential foodstuffs that can be purchased by individuals at any one time, the ministry said in a statement.

Russia may also decide to cap the prices of around 20 basic foodstuffs — meat, fish, milk, flour, sugar, oil, cereals, butter, rice, bread, cabbage, carrots, onions and potatoes — as an additional anti-inflation measure.

So far the government has not taken any steps in this direction.

But analysts warn that rising prices are already a reality, even if there are no government statistics to reflect the trend.

Catering groups interviewed by Russian journalists reported considerable price increases among their suppliers, even for local products.

A meeting with Moscow City Hall was scheduled for Wednesday.

In another sign of looming difficulties, the central bank has asked lenders not to release their financial statements as of February.

The move was necessary “to limit the risks of credit institutions associated with the sanctions imposed by Western countries,” the Bank of Russia said on Sunday.

The first days after Western sanctions were announced saw long queues emerge at ATMs in Moscow and other cities.

Now analysts fear that any questions about the financial health of individual banks could trigger a banking panic.

In a further blow, the EU this week cut seven Russian banks from the SWIFT payment system, while Mastercard and Visa announced on Saturday that they were suspending their Russia operations.

ALSO READ:

Russian economy to shrink by Dh917 billion in 2022

US, EU move to curb Russian access to IMF finance

As the two Western payments giants quit the market, China seems poised to take their spot as a number of Russian banks announced plans to issue cards using the Chinese UnionPay system.

The country’s largest private lender Alfa Bank said Sunday it was “already working on launching cards on UnionPay, China’s national payment system”, with Russia’s top bank, Sberbank, issuing a similar statement.

Russia’s central bank said that Visa and Mastercard cards already issued by national banks will continue to work within Russia until their expiry, since all payments in Russia are made through a national system.

However, it warned that Russians travelling abroad would need to carry cash.