Russian Central Bank to Provide Financing For Sanction Hit Banks

Russia’s central bank is working out new measures to provide foreign-currency financing for banks, as Western sanctions over the Ukraine crisis keep dollars in short supply.

Central bank governor Elvira Nabiullina said on Thursday that in the coming weeks the bank plans to introduce repo facilities under which it would lend dollars to banks for terms of seven and 28 days.

The new scheme is the first time the central bank has offered a foreign-currency repo. Its use underscores the authorities’ concern as Western sanctions restrict Russian corporate access to foreign financing, creating a shortfall of dollars that has helped push the value of the rouble to record lows.

The dearth of dollars is especially problematic because company debt repayments are due to spike, with some $50 billion falling due before the end of 2014.

Analysts said that the new repo facilities would help mitigate the immediate squeeze, but that more support measures may be needed in future if Western sanctions continue.

VTB Capital analyst Maxim Korovin said that he foresaw banks needing to borrow some $5 billion to $10 billion in the short term, an amount that should be well-covered by the new facility.

“Basically, the central bank is offering itself as a substitute for foreign banks,” he said.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza