10.06.22 Sanctions Review

Six Crisis Channels: the Central Bank economists assessed the effect of sanctions on the financial sector

The Central Bank economists have identified six main "channels" through which the sanctions-caused crisis is affecting the Russian financial sector — currency, credit, stock, interest rate "channels", as well as "channels" of income and insurance.

The strict financial regulations that the Central Bank has been imposing since late February were at least partially able to halt the spread of the crisis, but have triggered a major restructuring of the economy.

The dollar and euro are being replaced by the yuan on the currency market. Large corporate players have left the stock market, so it is being increasingly affected by private investors.

The effect of sanctions, spreading through the credit and income “channels”, can lead to a crisis spiral, which will become the second stage of the current financial sector crisis. The government's measures of concessional lending and the Central Bank's support of banks with potentially "bad borrowers" will have very limited effect to cope with this.