World Economy

Russia Says Sanctions Hurting

Russia Says Sanctions Hurting Russia Says Sanctions Hurting

Russia’s financial guardians made their broadest acknowledgment yet that sanctions are sinking the economy, as the central bank moved to protect the ruble after the currency’s worst week in more than a decade.

The Bank of Russia said in Moscow today that gross domestic product will probably stagnate in 2015, highlighting the damage wrought by a slump in oil prices and international measures linked to the conflict in Ukraine. Governor Elvira Nabiullina said the ruble’s slide has gone too far and pledged to limit local-currency funding to ward off speculators, Bloomberg reported.

It means the central bank “is facing the true reality,” said Vladimir Miklashevsky, an economist at Danske Bank A/S in Helsinki. “It looks like wishful thinking is over for now.”

The central bank cut the growth forecast in its main outlook for 2015 to zero and pushed back its estimate for meeting an inflation target of 4 percent by one year from 2016, according to the revisions published Monday.

The bank forecast that sanctions will last through 2017 and oil will average $95 a barrel, compared with an estimate of $102 this year. Benchmark Urals crude was trading at $82.13 on Nov. 7, according to Alexander Sakovich, a Finance Ministry adviser.The currency rallied 2.7 percent to  45.4070 per dollar by 4:34 p.m. in Moscow, the biggest advance since Oct. 30. It had its worst week in at least 11 years last week, falling 7.8 percent against the dollar in the biggest drop among 24 developing countries monitored by Bloomberg.

  Free Float

Today, it took that policy change further by fully eliminating the mechanism used for regular interventions and moving the exchange rate closer to a free float.

“In the short term, it will have an impact on inflation, deepen the economic troubles and push the economy into recession,” Lilit Gevorgyan, senior economist at IHS Global Insight, said by phone from London.


“On the other hand, a weaker ruble is good for Russian exporters and also could make the currency more resilient to future shocks.”

Inflation prompted the central bank to raise the benchmark rate four times this year, to 9.5 percent in October from 5.5 percent in February. Foreign-currency reserves shrank by a fifth since last year’s peak to $428.6 billion on Oct. 31.

The latest outbreak of fighting in Ukraine has stoked concern that the U.S. and its allies will toughen sanctions.