Russia’s central bank vows to support banks hit by new sanctions

— Russia’s central bank vowed Wednesday to support financial institutions targeted by new U.S. and European sanctions, adding potential strain to an already-taxed Russian economy.

The United States and European Union imposed the penalties after accusing Russia of channeling weapons, support and volunteers to a separatist rebellion in east Ukraine. But Russia suggested that Europe would also feel the pain of the sanctions.

“When Brussels starts a transition to a ‘third wave’ of sanctions, it affects the economic situation in the European Union no less than in Russia,” Russia’s Foreign Ministry said in a statement. “Do the citizens of E.U. member states know what these games will turn on, in terms of lost jobs and lost commercial gains?”

The wide-ranging sanctions aimed at Russia’s oil, finance and defense industries will restrict exports of Western-produced technologies crucial to developing new oil resources for Russia’s energy-dependent budget. They will also constrict medium- and long-term borrowing for most of Russia’s state-affiliated banks, which could slow economic growth.

The sanctions are unlikely to inspire the Kremlin to make quick tactical and geopolitical shifts, analysts said.

Russia's largest banks seek to reassure investors over E.U. moves that cut off access to capital markets, while Moscow announces bans on certain E.U. food imports. (Reuters)

“Tension is growing, inside the [political] apparatus and on the part of businesses,” said Kirill Rogov, an analyst at Moscow’s Gaidar Institute for Economic Policy. “But as of now, this tension is not sufficient to effect any changes to the state policy.”

In the short term, Russia can take steps — such as shoring up targeted banks — to keep the potential effects of sanctions in check and shield the general population that forms Russian President Vladimir Putin’s strong base of national support.

Sanctions’ “effects on ordinary Russians are not showing up immediately,” said Boris Makarenko, an analyst at the Moscow-based Center for Political Technologies, who added that there was “a rally-around-the-flag effect” as Russian politicians highlighted a confrontation between the East and West.

But in the longer term, economists warn that the country will experience a significant financial crunch.

“The situation is kind of dramatic, if it is not possible to borrow this money at the foreign markets,” Rogov said.

The promise of future pain is what economists say is keeping the Kremlin from responding to the latest rounds of economic sanctions in kind.

“We’re not preparing to act on the principle of ‘an eye for an eye,’ ” Russian Foreign Minister Sergey Lavrov told reporters on Monday – a sentiment repeated by other Russian government officials since, even as legislators considered a new law to designate countries that apply sanctions “aggressor countries,” according to a report in the Izvestia newspaper.

The rationale, economists say, is self-preservation.

“The United States loses almost as much as Russia does because of sanctions. But the European economy and the American economy are much larger than the Russian economy, so the real effect is much smaller,” said Konstantin Sonin, a professor at the Higher School of Economics in Moscow. “Russia cannot retaliate, economically, without hurting itself.”

On Wednesday, the E.U. added to a blacklist eight individuals and three companies it said either assisted or profited from the separatist movement in eastern Ukraine or Russia’s annexation of Crimea.

A contact group comprised of leaders from the different sides of the Ukrainian conflict also announced plans to meet in Belarus to discuss a possible cease-fire. The prospects of ceasing hostilities remained far from clear.

In eastern Ukraine, a team of forensics and aviation experts abandoned efforts to reach the crash site of Malaysia Airlines Flight 17 for the fourth day in a row, turning back to Donetsk after reports of gunfire.

Michael Birnbaum in Moscow and Carol Morello in Kiev contributed to this report.

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