Russia's economy cannot survive indefinitely on its financial reserves and will have to transform itself to deal with the impact of international sanctions, Central Bank Governor Elvira Nabiullina said Monday, flagging a further rate cut.
In her most significant speech since Russia sent its forces into Ukraine on Feb. 24, Nabiullina said it would take until 2024 to bring inflation back to its 4% target.
"The period when the economy can live on reserves is finite. And already in the second and third quarter, we will enter a period of structural transformation and the search for new business models," she said.
The postponement of the bank's key target underscored the challenge facing one of the world's most respected central bankers as she tries to stabilize Russia's economy under the onslaught of Western sanctions.
Nabiullina raised the bank's key interest rate to 20% from 9.5% on Feb. 28, four days after Russian forces entered Ukraine, but trimmed it to 17% on April 8.
On Monday she signaled she would seek to cut it further.
"We must have the possibility to lower the key rate faster," Nabiullina said. "We must create conditions to increase the availability of credit for the economy."
She also said Moscow plans to take legal action over the blocking of gold, forex and assets belonging to Russian residents, while adding that such a step would need to be painstakingly thought through.
Foreign sanctions have frozen about $300 billion of around $640 billion that Russia had in its gold and forex reserves when it launched what it calls its "special military operation" in Ukraine.
Sanctions had mainly affected the financial market, "but now they will begin to increasingly affect the economy," Nabiullina said.
"The main problems will be associated with restrictions on imports and logistics of foreign trade, and in the future with restrictions on exports," she added.
She said Russian companies would need to adapt.
"Russian manufacturers will need to search for new partners, logistics or switch to the production of products of previous generations," she said.
Exporters would need to look for new partners and logistical arrangements and "all this will take time," said Nabiullina.
She outlined several measures to help the economy adapt.
She said the central bank was considering making the sale of forex proceeds by exporters more flexible.
In February, Russia ordered exporting companies, including some of the world's biggest energy producers from Gazprom to Rosneft, to sell 80% of their forex revenues on the market, as the central bank's own ability to intervene on currency markets was curbed.
The bank may now soften the terms of the timing and volume of mandatory sales, Nabiullina said.
