Sberbank boss warns:

The Russian economy won’t last long like this

A rough wind is blowing. Pedestrians march past an exchange office in St. Petersburg.

(Bild: ASSOCIATED PRESS)

Sberbank CEO Herman Gref is very concerned about the Russian economy: it is showing signs of stagflation, especially in the construction sector. The situation as a whole is also anything but rosy.

The Russian people's relationship with the state as well as with banks, loans and the rouble is characterized by great mistrust. Savings are therefore often stashed away in foreign currencies in apartments that are far too small - under the mattress or in a piggy bank. Recently, however, there has been a change in thinking. It no longer makes sense to hoard money in dollars, for example, if the real value continues to fall and no interest is paid, explained Sberbank CEO Gref at the investor day of Russia's largest bank on Friday, as reported by the Russian media company RBK, among others.

The calculation is simple: "If you put 100 dollars under your pillow in 2022, at best you will have 80 dollars left today," says the manager of Russia's largest financial institution. "People are now taking the money out of their pillows and mattresses and depositing it all," explains the Sberbank boss. Another Russian bank, VTB, reported at the beginning of December that the proportion of savings in cash had reached a historic low. VTB attributed this to an increase in interest rates for ruble deposits.

"People are now taking the money out of their pillows and mattresses and depositing it all."

(Bild: APA/AFP/Natalia KOLESNIKOVA)

Russia slides into stagflation
According to Gref, there are now clear signs of an economic slowdown, particularly in residential construction and housing investment. With a stagnating economy, combined with high inflation, there is a risk of stagflation. The Russian economy is therefore in a serious situation, warns Gref: "A number of sectors and borrowers will be in a difficult situation." The banks are also facing challenges. "Of course, the economy won't last long like this," says the Sberbank boss alarmed.

Many are looking for a distraction from everyday life in Russia at the Christmas market on Red Square.

(Bild: APA/AFP/Alexander NEMENOV)

Weak rouble causes headaches for the Kremlin
Inflation, which is already very high, could be further fueled by a weaker rouble, as this would make imports even more expensive. "We have a new inflationary factor, the exchange rate," admitted central bank chief Elvira Nabiullina. Analysts surveyed by the Reuters news agency therefore assume that the central bank will raise its key interest rate from the current 21 to 23 percent on December 20.

In order to strengthen the rouble, President Vladimir Putin had made it impossible for buyers of Russian gas to exchange foreign currency for roubles at the US-sanctioned Gazprombank. The Russian national currency subsequently gained more than one percent against the dollar, according to over-the-counter data from the banks. In trading on the Moscow Stock Exchange, it also rose by one percent against the Chinese yuan to 14.20 roubles.

Below the 100 rouble mark again
The rouble is now worth more than a US cent again. On Friday, one dollar was worth just 99.50 roubles, which means that it has fallen below the 100 rouble mark again. The exchange rate has thus appreciated by around six percent this week - the strongest rise for more than a year. In November, more than 110 roubles were demanded for one dollar at times.

The CEO of Sberbank sees the fair value of the rouble in a range of 100 to 105 to the dollar. "We currently see no scope for a significant weakening of the rouble," said Gref. By the end of next year, Sberbank expects an exchange rate of 112 to 115 roubles per dollar.