Russian officials exhort investors to stay calm

Russian officials exhort investors to stay calm Photo: geralt

The new sanctions imposed on Russia by the United States last week have provoked a sharp decline in the value of the ruble and Russian stock exchange index. Governmental officials met with investors frightened of uncertainty in order to convince them that the new sanctions' impact on the national economy would remain limited and wouldn't cause a collapse.

On Tuesday, Russia's top economic policymakers faced an unenviable job: they were trying to persuade investors that the national economy could resist the latest sanctions imposed by the US, says Financial Times. The sanctions, which included transaction bans on 24 Russian oligarchs and government officials and 14 companies, were followed by a drop of the national currency and a dramatic decline in Russian stocks. Such a turn of events made many investors feel nervous: ''...we don't know what's going to happen. I spent my whole life trying to bring Russia to Western capital markets, and now my life's work is falling apart,'' an unnamed banker said.

However, Russian Minister of Economic Development Maksim Oreshkin urged the investors to stay calm. Many economists believe that the impact of the latest sanctions on the wider Russian economy may remain limited. They consider a new collapse to be highly unlikely due to the current oil prices, which are a lot higher and less volatile than in 2014 when sanctions combined with a global oil glut. According to head of Macro Advisory consultancy Chris Weafer, the ruble should soon return to the 59-60 level against the dollar if there is no material deterioration in geopolitical tension. ''Russia's economy is in better shape than four years ago. Banks and the corporate sector have less foreign debt and the ruble is floating freely, allowing them to absorb external shocks more easily,'' he commented. ''Russian companies and banks have significantly deleveraged since 2014, repaying $120bn in foreign debt," agrees Alfa Bank's Chief Economist Natalia Orlova.

The government will help companies affected by sanctions, ensured Minister of Economic Development Maksim Oreshkin. Photo: kremlin.ru

Russia's economic prospects are still likely to be affected by the sanctions, at least in monetary policy. According to former Minister of Finance Aleksey Kudrin, the Russian Central Bank can no longer be expected to cut interest rates in the coming half-year as the slide of the ruble caused by the nervousness around sanctions ''demands more attention from the Central Bank on inflation''. This can complicate the economy's return to growth. ''If Russia wants to grow even 1% per year or more, the main boost needs to come from investment,'' stated Vladimir Tikhomirov, chief economist at BCS Financial Group, adding that the investment could easily be derailed if a more cautious monetary policy raised the cost of credit again.

Earlier, the World Bank estimated that Russia's GDP would increase by 1,7% in 2018 and by 1,8% in 2019. The country's economy will need decisive structural reforms to grow faster than 2% annually in the longer term, Russia's leading economic policymakers warn. Revitalising the economy was one of President Putin's major pledges for his next term. He promised to bring more investments in healthcare, education and ''technological breakthrough''.

By Anna Litvina