The EU is slowly tightening the screw on Russia, with senior officials proposing yesterday to target state-owned Russian banks in its most serious sanctions so far. Ambassadorial talks on how precisely that is to be done continue today and the measures are likely to be enacted next week.
One key proposal is that European investors would be banned from buying new debt or shares of banks owned 50 percent or more by the state. These banks raised almost half of their 15.8 billion euro capital needs in EU markets last year. That is a big deal and there are increasing signs of investors turning their back on Russia lock, stock and barrel. However, with its giant FX reserves, the central bank can provide dollars to fund external debt for a considerable period of time.
The ambassadors did agree to add more people and entities to the EU’s asset freeze list, using expanded criteria including Russian companies that help to undermine Ukraine’s sovereignty. The 15 individuals and 18 entities, half of which are companies, will be named today. Russian shares are down about 1 percent in early trade.
The United States said Russia was firing artillery across its border to target Ukrainian military positions. It also said there was evidence the Russians intended to deliver heavier and more powerful multiple rocket launchers to separatist forces.
Russia’s central bank holds a policy meeting but is unlikely to give the economy much respite on the monetary policy front.
Last month, the central bank cut its growth forecast for the year to 0.4 percent and that was before sanctions were tightened by both the United States and European Union. But with inflation still well above its 5 percent target for 2014, the scope to lower interest rates looks somewhere between slim and none.