Russia Weighs Policy ‘Creativity’ If Sanctions Tightened

Russian policy makers are discussing non-standard monetary instruments they may use if the European Union tightens the stranglehold of sanctions over Ukraine, according to central bank First Deputy Chairman Ksenia Yudaeva.

“We have different scenarios, different alternatives to act -- the situation demands creativity,” Yudaeva told reporters today in the Black Sea resort of Sochi. “We’re in constant dialogue with banks and are considering all options. To be honest, we don’t see any need for unsecured loans, but we’re preparing this instrument, too.”

Russia’s government and the central bank are weighing measures to support the financial system after the U.S. and the EU imposed sanctions to penalize the country over the Ukrainian crisis, choking access to international credit for some lenders.

In Brussels today, representatives of the 28 EU governments are considering tightening the economic restrictions that were imposed on Russia in July. The EU followed the U.S. in putting more pressure on Russia’s banking industry, prohibiting state-controlled lenders including OAO Sberbank, the country’s biggest, from selling shares or bonds in the EU.

“We’re considering now whether non-standard instruments are necessary,” Yudaeva said, declining to be more specific.

The government has already stepped up support for the affected banks by investing 214 billion rubles ($5.8 billion) into preferred shares of VTB Group and 25 billion rubles in Russian Agricultural Bank from the National Wellbeing Fund, one of the country’s sovereign wealth funds.

The focus on unsecured loans harkens back to the height of the 2008-2009 credit crisis, when the central bank was forced to flood the financial industry with liquidity. It extended as much as 1.9 trillion rubles in unsecured loans to banks, loosened regulations and drained a third of its reserves to slow the ruble’s decline after the collapse of Lehman Brothers Holdings Inc. in 2008.

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