Russian economy spirals into deepening crisis as sanctions send people into panic
Widening Western sanctions roiled the Russian economy Monday, forcing the ruble to crater close to 30 percent against the U.S. dollar, prodding worried Russians to stand in line near ATMs for hours and stoking fears of a worsening inflation.
The volatile situation unfolding in the wake of Russian President Vladimir Putin’s decision last week to launch a large-scale invasion of Ukraine led his country to freeze its stock market Monday as he presided over a meeting with top officials over the economic crisis.
The Russian central bank also hiked interest rates to 20 percent from 9.5 percent in an emergency measure to protect the ruble’s value. Even before Russia’s military assault on Ukraine, the inflation rate was at 8.7 percent in January, its highest since 2016.
Kremlin spokesman Dmitry Peskov described the new Western sanctions, which include blocking some Russian banks from the SWIFT international payment system and restricting Russia’s use of its massive foreign currency reserves, as “heavy,” but argued Monday that “Russia has the necessary potential to compensate the damage.”
Still, ordinary Russians remain anxious about the prospects of a serious economic depression.
Over the weekend, social media posts showed lines snaking through streets with Russians attempting to take out as much foreign currency as possible from ATMs.
A European subsidiary of Sberbank, Russia’s largest bank, said it has experienced “significant outflows of deposits in a very short time,” CNBC reported.
The country last faced a major cash crisis in 2014, when oil prices fell. The central bank said last week that it would increase supplies of cash to ATMs in anticipation of increased demand.
Meanwhile, certain bank branches could close or the country could declare a bank holiday to stave off a deepening crisis.
The U.S. Department of the Treasury announced further sanctions Monday on “key sources of Russia’s wealth” that would immobilize any assets of the Russian central bank in the United States or held by Americans. The department also sanctioned a key Russian sovereign wealth fund, the Russian Direct Investment Fund, worth about $10 billion, and its CEO, Kirill Dmitriev, a Putin ally.
The Biden administration estimated that the increased sanctions could affect “hundreds of billions of dollars” of Russian funding.
Biden administration officials said Germany, France, the United Kingdom, Italy, Japan, the European Union and others will join the United States in targeting the Russian central bank, as well.
A sharp devaluation of the ruble would mean a drop in the standard of living for the average Russian, economists and analysts said. Russians are still reliant on a multitude of imported goods and the prices of those items are likely to skyrocket.
The Russian government will have to step in to support declining industries, banks and economic sectors, but without access to hard currencies like the U.S. dollar and the euro, they may have to resort to printing more rubles.
It’s a move that could quickly spiral into hyperinflation, economists say. Sanctions announced last week had already taken the Russian currency to its lowest level against the dollar in history.
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