“In my view, many movers and shakers in the market have already factored in these parameters over the past week to manage their exposure to the Russian market, but markets around the world, particularly Europe, Asia and the U.S., will undergo an adjustment period,” Anthony Kim, a research fellow in economic freedom at the Heritage Foundation, told FOX Business.
Russia kept its stock market closed for three weeks as crippling financial sanctions and a significantly weaker ruble (RUB) led to fears of a massive sell-off and a possible economic death spiral.
Russia also faced the danger of sovereign default, but avoided that particular hurdle with a debt payment of roughly $117 million. Credit rating agency Moody’s earlier this month put Russia on the second-lowest rung on the credit ladder, just above default.
Kim explained that the payment generated space for a “soft landing,” which helped to soothe “some fears,” but that the Russian economy will feel the impact far more than the rest of the world.
“There will be some immediate negative ripple effects, but markets such as ours and other sizable ones in Europe and Asia will make relatively smooth transitions,” Kim said.
“The Russian economy will have more of the intended impact of all the sanctions we have put in place,” he added. “The Russian government’s capacity to pay its next sets of debt payments will be shrunk … there is that risk of sovereign debt defaults for sure, but given the degree of global linkage of the Russian financial sector/system is not as deep, broad and direct as other countries’ sectors, the pain will be more internal as time goes by.”
The opening of the market is sure to create some level of sell-offs over the next week, and Russia will continue to seek interventions as it remains cut off from the West after the U.S., Europe and Japan removed Russia’s access to the SWIFT global economic system.
The Moscow Times reported Friday that Russia’s Central Bank will buy government bonds when trading resumes, but it did not reveal how much it will spend to “limit the risks to financial stability.”
“We are now ready to gradually resume trading on the Moscow Exchange. On Monday, trading will open for government bonds,” Gov. Elvira Nabiullina announced. “In order to neutralize excessive volatility and provide balanced liquidity, the Central Bank will buy government bonds.”
Economics experts have highlighted the significant impact freezing the central bank’s assets have had on Russia’s ability to fight sanctions.
“When the world turned against him, that’s how he was going to keep financing things,” Brenberg said. “The world has said you’re not going to get that money, so Putin is struggling on that front.”
“You can’t fund things, you can’t get money,” he said. “It’s hard to run a war when you can’t get money.”