It’s impossible to gauge the impact financial sanctions are having on the Russian economy – they’re a slow burn. The US-based Institute of International Finance predicts Russia’s economy will contract by 15 per cent this year due to the severity of sanctions and the growing corporate boycott. A sovereign default or at least a signal that it’s on the horizon could accelerate things.
On Wednesday Moscow is due to pay $117 million on two of its dollar-denominated bonds. It has been sending mixed signals in advance, including a suggestion it might pay the coupon in roubles, which would be viewed as a technical default.
State-run energy giants Gazprom and Rosneft have made international bond payments in recent days, and the Russian government still has significant unsanctioned reserves – around $200 billion – but nothing can be taken for granted in the current climate.
Also, Russia’s Vedomosti financial newspaper reported central bank and Moscow Exchange sources as saying this week that suspended local equity and bond trading could resume by then. It would be chaotic at least in the short-term. Russia’s big firms, which also listed on the London and New York markets, saw those international shares slump virtually to zero when the crisis broke out and have now been stopped.
“There are many financial institutions that are sitting on Russian assets that they want to get rid of but they can’t,” said Rabobank currency strategist Jane Foley. “They have no real option but to sit on them. But that means that when they are allowed to trade, the selling could be quite persistent.”
The fallout might not end there either. Russia’s central bank is scheduled to meet on Friday having already more than doubled interest rates to 20 per cent and brought in widespread capital controls to try and prevent a full-blown financial crisis.
