The amount of cash in circulation increased by 513 billion rubles (5.75 billion euros) in the first two weeks of July, after an increase of 479 billion rubles (5.37 billion euros) in June, according to data from the Russian Central Bank. Since the beginning of February, the amount of cash in circulation has increased by more than 2.4 trillion rubles (26.9 billion euros).
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This surge coincided with a wave of Ukrainian drone attacks, which led the Kremlin to repeatedly shut down mobile internet in a large part of the country. As a result, many people were unable to pay with bank cards. Moscow claims that internet restrictions are necessary to protect against attacks.
This also comes at a time when economic pessimism in Russia has reached its highest level in two decades. A recent Gallup poll showed that 60% of Russians believe the economic situation in the country is deteriorating, and 56% said their standard of living is decreasing.
Borrowing from banks is growing rapidly
According to economists, persistently high inflation, rising taxes, and stricter government control over financial operations are increasing uncertainty and encouraging some residents to move money outside the banking system.
“Essentially, a disbalance has formed in the country between money returning to banks and funds withdrawn by residents,” economist Igor Lipsits told The Moscow Times.
Mass cash hoarding has led to a shortage of ruble liquidity in banks, forcing the Russian Central Bank to significantly increase funding for the banking sector.
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In the first three weeks of July, the central bank provided an additional 2.099 trillion rubles (23.5 billion euros) to banks through repurchase (repo) operations. As a result, the total debt of banks to the regulator reached 6.243 trillion rubles (70 billion euros) – almost double the amount at the end of last year.
“The Bank of Russia is trying to solve the liquidity problem by refinancing the banking system, primarily the largest banks,” economist Alexander Abramov told The Moscow Times.
“Significant problems”
A. Abramov also pointed to “signs of problems” in the interbank market, where banks lend to each other. According to him, borrowing costs remain higher than the central bank’s key interest rate, even as the regulator increases liquidity injections.
The situation is further complicated by the growth of non-performing loans. According to central bank data, their share has already exceeded 10%.
According to the International Monetary Fund (IMF) methodology, such an indicator signals “significant problems” in the banking system, the resolution of which may take a long time, analyst Maximilian Hess told The Moscow Times.
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