Here’s how hard sanctions have hit the Russian economy
When Putin first declared a military invasion of Ukraine, the West retaliated with a series of sanctions, including blacklisting some Russian institutions and suspending the Nord Stream 2 gas pipeline. The initial sanctions were a warning , but the Russian ruble and the markets remained largely stable. As Russian soldiers approached kyiv, the United States, the European Union and other Western allies increased the pressure. Western nations slapped Russia with more severe penalties in reaction to his illegal invasion of Ukraine. These sanctions began to have a significant impact on the Russian economy, affecting everyone in the country. Even the president is not immune to the repercussions of the invasion of Ukraine.
Putin and other Russian officials who supported the invasion were sanctioned and their assets in other countries were frozen. As violence in Ukraine escalated and Ukrainian President Vladimir Zielinski called for additional help, the United States and its allies imposed the toughest penalties to date. They imposed sanctions on the Central Bank of Russia, which made it more difficult for it to liquidate its foreign currency holdings. In other words, the sanctions prevented it from using its contingency reserve to support the rouble. Other countries have also agreed to disconnect some of Russia’s private banks from the international payment system. The big question is whether these sanctions really matter or not.
They effectively stopped the movement of funds to and from Russia. This sabotaged Russian banks while limiting Moscow’s ability to regulate the economy and absorb the shock. The third round of sanctions caused the Russian currency to fall to its lowest level in history. Citizens were pictured lining up to withdraw cash from banks and ATMs. A devalued currency means a lower quality of life, and items such as phones and electronics imported into Russia will become more expensive. This is why the fall of the ruble should exacerbate inflation, which was already at 8.7% in January.
According to a former official of the Russian Central Bank, inflation could rise by 5 percentage points. Therefore, if the Russians give up and stop spending so much on products and services, factories can close and businesses can shake, resulting in a contraction of the Russian economy. Obviously, the Russian government is not happy with any of these things and is trying to reduce the impact of the sanctions. He retaliated by implementing capital restrictions. This means that the Moscow Stock Exchange has been temporarily closed to prevent anyone from selling shares. It also made it illegal for citizens to transfer money to banks outside the country. The Russian Central Bank further increased the benchmark interest rate from 9.5% to 20%.
The purpose of this action, according to reports, is to encourage individuals to put their money in Russian banks, where they will earn higher interest due to the banks’ isolation from the rest of the world. Higher interest rates, on the other hand, do not always benefit Russian residents and businesses. These higher interest rates make borrowing more expensive, and moves by major central banks tend to heighten fears of financial catastrophe.
In addition to sanctions, Western companies have begun to withdraw their relations with Russia. Apple, for example, suspended all product sales in the country and Disney suspended movie releases. Other effects for Russian businesses and citizens include travel limitations, as Russian jets are not allowed to fly in various countries. The country’s leaders have recognized the Financial difficulty, but there is an indication that the sanctions will push President Putin to withdraw his soldiers from Ukraine, which is, of course, the ultimate goal. Putin called the United States and its allies an empire of lies when denouncing the sanctions.