Russia to extend capital controls amid continued economic pressure

9:33 am Thursday, March 02nd, 2023

By Alexander Marrow and Elena Fabrichnaya

MOSCOW (Reuters) -Russia’s central bank said on Thursday that it would extend capital controls affecting foreign currency withdrawals and transfers abroad, warning that some economic sectors continued to feel the pinch from sanctions despite their resilience.

Russia’s economic landscape changed drastically after it sent tens of thousands of troops into Ukraine last February, as Western sanctions cut its biggest banks from the SWIFT global payments network, curbed its access to technology and limited its oil exports.

The central bank and the government responded with sweeping capital controls, including a ban on sending foreign currency abroad to shore up the rouble and stabilise its banking sector.

Central Bank Governor Elvira Nabiullina, speaking at a banking forum near Moscow, said that while many of these restrictions had been lifted or eased, current economic conditions meant that several would remain in place.

“Deadlines for restrictions like limits on withdrawing cash currency from bank accounts, money transfers abroad, and restrictions on withdrawals by non-residents from ‘unfriendly’ countries are approaching,” she said.

“All of them will be extended.”

Russia’s economy has proved remarkably resilient in the face of tough Western sanctions, but analysts still predict a 1.9% drop in economic output in 2023, after an estimated 2.1% slide in 2022.

‘SYSTEMIC RISKS’

Nabiullina warned of “systemic risks” to the banking sector as lenders scrambled to make up for last year’s slump in profits, but played down the effect of the latest round of Western sanctions.

The United States and Britain last week added several Russian banks to their sanctions lists, while the European Union booted more banks from SWIFT, among them online lender Tinkoff and the private Alfa Bank.

This was not a shock to the financial system, Nabiullina said. “Compared to banks that were previously hit by sanctions, they are relatively small and have had time to prepare in terms of reducing the assets that can be blocked.”

Those sanctioned last week have responded in a largely relaxed manner, with some saying disruption will be limited and others restricting foreign currency transactions or suspending euro trading on brokerage accounts.

(Writing by Caleb Davis; Editing by Mark Trevelyan and Tomasz Janowski)