(Bloomberg) -- Russian consumers are more resigned than panicked as they are forced to adapt to a new way of life in an economy the rest of the world is seeking to financially devastate for President Vladimir Putin's invasion of Ukraine.
That's the new reality after a week in which the ruble crashed, inflation and interest rates jumped and foreign suppliers of everything from food to cars vowed to stop doing business in Russia. Alongside U.S. and European sanctions, seven of Russia's biggest lenders are now banned from the SWIFT international messaging system.
Yet many Russians, who have seen numerous bank runs over the last three decades, are for now approaching the descending hardship with fatalism. Capital controls, the higher interest rates and other emergency measures already helped slow a bank run that drained some $14 billion in a single day.
“As strange as it sounds, in general there's no panic at stores or ATMs,” said Elmira, 48, who works in education in Ufa in the Urals region. She declined to give her last name.
“There's clearly no easy solution, but I wasn't about to run and buy up euros or dollars or get something just to spend money,” she said.
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The resilience of households is crucial for Russia's $1.5 trillion economy that counts on consumer spending for more than half of all activity.
The central bank has ordered a raft of measures to prevent the bank run, from more than doubling the key interest rate to 20% in an emergency move to freezing local equity trading since Friday. Russia has also temporarily banned foreigners from divesting Russian assets and ordered exporters to sell 80% of their foreign currency earnings.
Yet the moves come at a price. Russia's economy could shrink by 3%-5% assuming energy exports are allowed to continue, according to Citigroup Inc.'s Russia economist Ivan Tchakarov. Supply disruptions will have an even bigger impact on inflation than the ruble's devaluation, he said.
What Bloomberg Economics Says...
“Towering interest rates, cratering sentiment and ballooning uncertainty will stymie investment. The severe slide in the ruble will push inflation higher, hitting purchasing power. Sweeping curbs on trade in software and technology also look set to ripple through Russia's supply chains, extending the effects of the shock and adding a longer-term drag on productivity.”
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Russian airlines have been banned from much of European and North American air space, while as more than half of its fleet could be grounded as sanctions make leasing planes impossible. Danish shipping giant A.P. Moller-Maersk A/S this week suspended booking to and from Russia indefinitely, with the exception of food and medical supplies, and warned of delays globally as a consequence of sanctions.
In the first indication of an inflationary wave set off by the war, weekly price growth nearly doubled to 0.45% in the seven days ended Feb. 25, even before the worst of the sanctions were announced.
Amid the brewing crisis, Volvo Car AB, Harley-Davidson Inc. and General Motors Co. announced they were halting shipments to Russia. The country's largest alcohol importer said it would stop deliveries as the ruble crashed, according to state-run Tass news service.
With the prospects of imports unclear, X5 Retail Group NV, the country's biggest food retailer, said its stores are stocking up to two months worth of buckwheat and other staples in several regions to meet demand.
The Federal Antimonopoly Service said Tuesday several leading grocery stores have agreed to cap price growth at 5% on socially important goods.
But other costs are soaring.
“Prices for electronics and most imported goods have increased by 20-30% on average since the start of last week,” said Boris Ovchinnikov, co-founder of Data Insight.
Preaching Calm
Many people's resigned response is in part due to efforts by the government to assure people that its technocrats have the situation under control. Prime Minister Mikhail Mishustin said in remarks broadcast on state television Tuesday that Russia had been preparing for the threat of sanctions for years.
Even so, his deputy Yuri Borisov said that the scale of the sanctions was hard to predict, Interfax reported Wednesday.
Russian incomes have already stagnated since 2014, when plunging oil prices and sanctions over the Kremlin's annexation of Crimea from Ukraine sent the ruble spiraling to record lows. That could mean they have less ability to absorb the shock of the latest wave of inflation.
The effects of the withdrawal of 1.4 trillion rubles ($14 billion) on Friday on banks could take time to play out. In Russia's 2014 ruble crisis, it took weeks before the first large lender collapsed.
Since then, the central bank under Governor Elvira Nabiullina spent years eliminating under-capitalized institutions, and the sector is better prepared this time around.
Raining Cash
Russian banks tapped about $60 billion in repo funding on Tuesday, representing nearly 10% of the nation's total deposits and highlighting how much pressure liquidity has been under, according to Bloomberg Intelligence's Tomasz Noetzel.
In order to prevent the cash drain, Alfa-Bank, Russia's largest privately-owned lender, raised its interest rate for ruble deposits to 20% this week, leading to 100,000 new term savings accounts in a day totaling over 100 billion rubles. It is also offering three-month dollar deposits at an 8% annual rate. Sanctioned VTB Group twice raised deposit rates in the last week.
“It is not clear at what level this form of pressure on the financial market will end,” Garegin Tosunyan, the head of the Association of Russian Banks, said. “A couple of days of peak panic have passed, but people's next moves are unpredictable. People have starting thinking long-term, but they cannot forecast anything.”
©2022 Bloomberg L.P.
With assistance from Bloomberg
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