Statement by Bank of Russia Governor Elvira Nabiullina in follow-up to Board of Directors meeting on 28 February 2022

Good afternoon,

Today, the Bank of Russia has made the decision to raise the key rate to 20% per annum.

The conditions for the Russian economy have altered dramatically. The new sanctions imposed by foreign states have entailed a considerable increase in the ruble exchange rate and limited the opportunities for Russia to use its gold and foreign currency reserves. Accordingly, we need to employ a wide range of tools to maintain financial stability.

The dynamics of the exchange rate is an additional proinflationary factor that affects the current product prices and causes a drastic rise in devaluation expectations and inflation expectations. In order to support the attractiveness of deposits and protect households’ savings against depreciation, we need to raise interest rates to the levels that would compensate for higher inflation risks for people.

We will make further decisions on monetary policy depending on actual developments and the assessment of risks, primarily related to external conditions. Our monetary policy will be aimed at maintaining financial and price stability.

Now, I would like to speak on other measures we are currently implementing.

Today, Russia’s financial system and economy are facing a totally abnormal situation, and the Bank of Russia will use any necessary tools very flexibly.

As regards the banking sector liquidity, the Bank of Russia is continuously providing cash and non-cash rubles to banks. Due to the high demand for cash, the banking sector is now experiencing a structural liquidity deficit. Banks have sufficient collateral to increase the amount of liquidity raised from the Bank of Russia.

Speaking of the foreign exchange market, the Bank of Russia carried out FX interventions totalling one billion US dollars on Thursday and in a smaller amount on Friday. Considering the restrictions on using the gold and foreign currency reserves in dollars and euros, we have not carried out interventions today. The Government has announced the decision obliging enterprises to sell 80% of their export revenues. This measure will help ensure an even supply of foreign currency in the domestic FX market to meet importers’ and households’ needs. Moreover, the Bank of Russia is taking a range of steps towards limiting the withdrawal of capital by non-residents.

We are continuously monitoring on-exchange trades and taking appropriate measures when needed. Specifically, the restrictions on securities sales by non-residents have already been introduced.

We are constantly in touch with banks and are prepared to promptly take all necessary measures to support them. In particular, we have already introduced a number of regulatory relaxations, and will further monitor banks’ needs in mechanisms that would support their operation in the new conditions.

We have allowed banks not to revaluate their investment in securities, as well as foreign currency assets and liabilities for calculating capital adequacy ratios. This will help banks gradually adjust to the new environment.

We will not enforce the banks sanctioned by foreign states to comply with open currency position limits. We have implemented a number of measures allowing banks not to increase their provisions during the year.

As part of countercyclical macroprudential policy, we have released the accumulated buffers for all loan types, including foreign currency loans to companies and household loans. These measures are equivalent to an increase in banks’ capital by 900 billion rubles.

In such a situation, it is critical to support not only banks, but also their clients. As a result of the imposed sanctions, households and companies are also experiencing a deterioration of their financial position. In this regard, we recommend that banks should meet the needs of their clients approving loan restructuring without imposing any penalties and fines on such loans. This is essential for both retail and corporate loans. Furthermore, banks are allowed not to decrease their assessments of a borrower’s financial standing and debt servicing quality.

Following the key rate increase, payments on loans at floating rates grow as well. There are almost no such loans in the retail segment: absolutely no such loans in mortgage and a minimum number of them in consumer lending. I would like to emphasise that banks may not change conditions on the current loans issued at fixed interest rates. There are no floating rates in retail lending. However, banks have been actively increasing the portion of such loans in the corporate segment in recent years in order to limit their interest rate risk.

Nonetheless, we assess the risk of a potential transformation of interest rate risk into credit risk as limited: generally, such loans are raised by large companies with high creditworthiness. If a borrower is facing hardships with a loan at a floating rate and the bank is ready to restructure such a loan, we are also prepared to grant regulatory easing for provisions.

In the current situation, it is crucial to maintain the potential for lending to both households and businesses. In crisis conditions, banks tend to shift towards conservative approaches and slow down lending. Therefore, we have already provided relaxations to banks by suspending the limit on the total cost of a consumer loan. Furthermore, the Bank of Russia will soon adjust the macroprudential buffers for unsecured and mortgage loans and will only leave the buffers for the riskiest loans, that is, loans with the highest total cost of credit, high payment-to-income ratios and, in mortgage, high loan-to-value ratios. As to all other loans, we are going to cancel the buffers in order to support the affordability of lending.

All banks are fulfilling and will continue to fulfil all obligations to their clients. All funds in clients’ accounts are preserved, and all transactions are available to clients.

We have granted regulatory easing to insurers and professional securities market participants. Moreover, we will consider other relaxations to guarantee the fulfilment of all obligations to their customers.

We have been developing the domestic financial infrastructure. It will continue to operate smoothly. Namely, we have the financial messaging system (FMS) that can replace SWIFT inside Russia and allows the connection of foreign participants. The National Payment Card System processes the entire traffic on payment cards inside Russia. International payment systems cards issued by the sanctioned banks will continue to operate inside Russia as normal.

The Bank of Russia will implement all necessary measures to maintain financial and price stability, support the Russian financial sector, and protect the welfare of citizens and the economy in general.