'Russia will compensate the damage': Kremlin on Western sanctions

Kremlin on Monday said that Russia will ride out the sanctions imposed by the United States, the United Kingdom, European Union and other countries.

"The Western sanctions on Russia are hard, but our country has the necessary potential to compensate the damage," Kremlin spokesman Dmitry Peskov told journalists. 

He added that "today Putin will be working on economic questions" and meeting key ministers. 

"The economic reality has significantly changed, let's put it this way," he said, adding that Russia had taken steps to prepare for it.

"Russia has been systematically preparing for quite a long time for possible sanctions, including the heaviest sanctions that we are now facing," he said. 

The Western-led response to the invasion has been sweeping, with sanctions that effectively cut off Moscow's major financial institutions from successive Western markets sending Russia's rouble currency down 30 per cent against the dollar on Monday.

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While they hope to curb Putin’s aggression after he unleashed Europe’s biggest conflict since World War II, the measures also risked pushing an increasingly cornered Putin closer to the edge.

“It’s going to ripple through their economy really fast,” said David Feldman, a professor of economics at William & Mary in Virginia. “Anything that is imported is going to see the local cost in currency surge. The only way to stop it will be heavy subsidisation.”

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Russia’s central bank sharply raised its key interest rate Monday in a desperate attempt to shore up the currency and prevent a run on banks. The bank hiked the benchmark rate to 20 per cent from 9.5 per cent. 

The Russian government will have to step in to support declining industries, banks and economic sectors, but without access to hard currencies like the US dollar and euro, they may have to result to printing more rubles. It’s a move that could quickly spiral into hyperinflation.

The ruble slide recalled previous crises. The currency lost much of its value in the early 1990s after the end of the Soviet Union, with inflation and loss of value leading the government to lop three zeros off ruble notes in 1997. Then came a further drop after a 1998 financial crisis in which many depositors lost savings and yet another plunge in 2014 due to falling oil prices and sanctions imposed after Russia seized Ukraine’s Crimea peninsula.

(With inputs from agencies)