Adapting Russian Business and Economy Under High-Interest Rates Scenario
In a notable development, large Russian companies have managed to avoid mass bankruptcies despite facing high interest rates and economic challenges. According to Dmitry Pyanov, First Deputy Chairman of VTB Bank, this achievement can be attributed to several key factors that reflect the complex state of Russia's economy.
One of the significant factors is the selective sectoral impact and state support. While sectors such as coal mining and construction are grappling with steep declines, wage arrears, and losses, other parts of the economy, particularly banks and businesses linked to military contracts, remain profitable and financially stable. This uneven impact means large, state-connected companies have shown remarkable resilience amid broader economic malaise.
Another factor is the high interest rates and banking sector strain. Russia's central bank has maintained key interest rates around 20%, a level that is typically burdensome for borrowers. Despite this, the pressures have not yet triggered a widespread chain of bankruptcies among the largest companies. This could be due to their stronger capital buffers, state backing, or access to other financing means.
However, despite the absence of mass bankruptcies so far, wage arrears have sharply increased, particularly in construction, manufacturing, and utilities sectors. This suggests that while default events have not exploded publicly yet, underlying financial problems are accumulating and could precipitate bankruptcies in the future.
The continuing impact of sanctions and declining oil revenues have created a budget shortfall and limited options for economic stimulus. The government and large firms may be employing stopgap measures to avoid large-scale insolvencies, but these measures may only delay an inevitable broader crisis.
Dmitry Pyanov also highlighted the floating nature of the ruble's exchange rate, implying that the Bank of Russia's monetary policy might need to consider the impact of exchange rate fluctuations on financial stability. He also noted that the resilience of businesses might be linked to the adaptability of market participants, who have demonstrated readiness for a quick reaction to economic shocks.
Despite these challenges, the Bank of Russia continues to focus on containing inflation, despite complex macroeconomic conditions. To achieve this, they use various tools to limit price growth, including increasing the key rate, selling currency, changing tax rates, and limiting credit. According to Dmitry Pyanov, inflation expectations among the population should be within 8-10%, a target that, if achieved, increases the chances of controlling inflation.
In conclusion, large Russian companies have so far avoided mass bankruptcies due to a combination of selective sectoral resilience (notably in state-linked sectors), continued state and financial sector support, and a lag between financial distress signals and formal bankruptcy filings. However, analysts warn of a potential cascading banking crisis that could rapidly worsen the situation in the coming months. The Bank of Russia remains committed to maintaining inflation within target ranges, and market participants are ready for a quick reaction to economic shocks.
- Businesses linked to military contracts, as well as banks, have remained profitable and financially stable due to selective sectoral resilience and continued state support.
- Despite the absence of mass bankruptcies among large companies, wage arrears have significantly increased, particularly in sectors such as construction, manufacturing, and utilities, signaling underlying financial problems that could potentially precipitate bankruptcies in the future.
