Russia's economy already seems to be feeling the effects of the sanctions that the EU and a number of other countries have imposed as a consequence of the invasion of Ukraine. The Russian ruble fell by up to 40 percent against the dollar overnight on Monday.
And even though the Russian central bank intervened on Monday morning and carried out support purchases, you now have to give 113 rubles for one dollar. This should be seen in relation to the fact that the exchange rate on Friday evening was 84.
The central bank has also raised the key interest rate from 9.5 percent to 20 in an attempt to keep inflation at bay. According to Sydbank's chief economist, Søren Kristensen, this is an indication that the sanctions are working as intended.
- It's hurting the Russian economy like crazy. It's not everyday when the ruble falls so sharply, and we see that interest rates are being raised by 10 percentage points. It is an economy that is hard hit right now. And it is sanctions that will gnaw even harder over time, he says.
Natural gas free from sanctions
The central pivot in the Russian economy right now is therefore natural gas, which is exempt from sanctions.
- It is the gas that finances the Russian war machine right now. But conversely, the Eastern European countries, Germany and Italy will be hit hard if imports from Russia are closed. And Europe will be sent into recession if that happens because industry will be affected by higher energy prices, Søren Kristensen estimates.
As a countermeasure to the sanctions, the Russian Central Bank has also closed foreign trading in securities to prevent further divestments of Russian shareholdings that could lead to a fall in prices. Rules are also being introduced that require Russian export companies to sell 80 percent of their foreign currency income to the central bank.
The Russian Central Bank has built up a nice foreign exchange reserve in recent years, but the European sanctions mean that a good two-thirds of the reserve is probably frozen and therefore cannot be used for support purchases.
Russia's partial exclusion from the Swift banking system is also hurting the Russian economy because it slows down the transfer of currency to and from a large number of Russian banks.
Ritzau
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