Bank of Russia responds to Western threats

The Bank of Russia (the Central Bank) will provide domestic banks with cash and non-cash liquidity in rubles in order to maintain financial stability and protect the economy from the impact of the latest Ukraine-related Western sanctions, the regulator said in a statement on Sunday.

“The Bank of Russia will continuously provide banks with cash and non-cash liquidity in rubles. The REPO (repurchase agreement) auction on Monday will be held on an unlimited basis, with full satisfaction of all applications received from banks,” the statement released by the press service of the Central Bank reads.

The regulator added that it will also “significantly expand” its Lombard List, which includes the securities it is ready to accept as collateral for backing credit institutions’ refinancing operations, for “maximum coverage of the possible needs of banks in current liquidity.”

“The Bank of Russia has the necessary resources and tools to maintain financial stability and ensure the operational continuity of the financial sector,” it said, adding that the country’s banking system is “stable, has sufficient capital and liquidity to function smoothly in any situation,” funds held on bank accounts are safe, and banking services will be provided as usual.

The statement comes after a group of Western nations, including the EU, US, UK, and Canada, announced a package of sanctions targeting the Russian economy on Saturday, amid the ongoing Russian military operation in Ukraine.

The measures include the freezing of assets held by the Russian Central Bank and cutting off an unspecified number of Russian financial institutions from the SWIFT international system of interbank transfers. The first measure aims to block Russia from using its reserve assets to tackle the impact of Western sanctions on its economy, the second – to sever the ability of Russian banks to conduct transactions internationally.

According to the Central Bank, however, the transfer of financial messages within the country is provided by its domestic Financial Message Transfer System (SPFS), which does not depend on SWIFT. According to Russian state development corporation VEB.RF, the SPFS could be used for international transactions.

The head of the State Duma Financial Market Committee, Anatoly Aksakov, said alternate ways also exist to keep international transactions working, for instance, using the economic infrastructure of friendly states. Some experts even claim that cutting ties with SWIFT could be a positive development for Russia, as it could propel the spread of the Russian ruble as an international currency.