Interfax: Sovereign debt sanctions may cause brief volatility, no real effect on economy, financial stability – Nabiullina

Elvira Nabiullina file photo

ROSTOV-ON-DON. Feb 1 (Interfax) – U.S. sanctions targeting Russian sovereign debt, if introduced, might lead to short-term volatility on the sovereign debt market, but would not have a substantial effect on the economy or financial stability, Central Bank Governor Elvira Nabiullina said.

“We saw this risk previously, we see it now. We evaluated it, evaluated the effect of two possible scenarios: a scenario when there is a ban on purchase of new [obligations] and a ban on ownership [of existing obligations]. Of course, both of these decisions might trigger some volatility on the sovereign debt market, but in our view, even if there is initial short-term volatility, the markets will arrive at equilibrium,” she told reporters.

“We do not see any great effects either for the economy, financial stability or the financial sector,” Nabiullina said.

Potential sanctions against Russian sovereign debt would primarily harm foreign investors, Finance Minister Anton Siluanov said in an interview on January 16.

“If these sanctions are introduced, those primarily suffering would be foreign investors, who are happy to invest in Russian obligations and receive a steady, reliable, guaranteed high return,” Siluanov said.

If such sanctions are imposed, Russian sovereign bonds would be placed “among our Russian investors, using Russian infrastructure, which is very important.”

“We will also be engaged in not increasing budget imbalances, in order to carry out this borrowing in minimal volumes,” he said.

The U.S. sanctions act, passed in the summer of 2017, obliges the Secretary of the Treasury to make a report to Congress, detailing the potential impact of extending he sanctions to sovereign debt and all possible derivatives of that debt, within 180 days of the law’s adoption after consultations with the Secretary of State and the National Intelligence Director. The report is expected within days.

[featured image is file photo from another occasion]