Russia’s Central Bank says no immediate consequences of default

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Russia’s Central Bank says no immediate consequences of default

The Russian Central Bank headquarters is located in Moscow. Elvira Nabiullina, the head of the bank, said there wouldn't be immediate consequences of a default.

Russia appeared to be falling into default on its international debt on Monday as a grace period to make a payment expired, the latest sign of how isolated Russia has become from global financial markets as punishment for its invasion of Ukraine. The extra period to pay about $100 million in euro and dollars ended on Sunday, 30 days after the initial May 27 deadline, as sanctions blocked Russia's payment routes. Rating agencies, who are not allowed to report on Russia, have not declared Russia in default, so investors will need to come up with a declaration of a default event. Nor has the Credit Derivatives Determinations Committee, a panel of investors who rule on whether to pay out securities linked to defaults. The payments had not reached bondholders accounts as of Sunday night.

Russia s finance ministry said before the deadline that Russia had fulfilled its obligations to investors and paid rubles, though most of Russia's foreign-currency debt doesn't allow for payments in rubles. On Monday, Bloomberg and Reuters reported that Russia had defaulted because the payment deadline was missed, but Tass, Russia's state-news agency, reported later Monday that the government did not consider itself to be in default.

In late February after Russia invaded Ukraine and sanctions were imposed to sever the country from international financial markets, there was a risk of default. In late May, Russia tried to navigate tighter sanctions that cut off access to American banks and bondholders by sending payments to a Moscow-based institution. The funds never made it into bondholders accounts. Moscow is likely to insist that it has not defaulted, given its efforts to pay. The contentious nature of the default will make it hard for investors to demand early payment on outstanding debt, which often happens after a default, while sanctions could make it almost impossible to resolve the disagreement. This default would be unusual because of economic sanctions blocking transactions, not because of the Russian government running out of money. Moscow's finances remain strong after months of war, with nearly 600 billion dollars in foreign currency and gold reserves, but about half of that is frozen overseas. Russia is receiving a steady flow of cash from sales of oil and gas. A default would make it more expensive for the country if it gains access to international markets if it can't borrow money on international markets. This one is not likely to have a significant impact on international markets or local residents, unlike other major defaults in recent history.

Elvira Nabiullina, head of Russia's central bank, said there would be no immediate consequences of a default because there had already been an outflow of international investors and a drop in the value of Russia's assets. The government can still pay Russians who own ruble-denominated bonds. The central bank is more concerned with inflation and supporting the economy through an exodus of foreign companies and investment.

The sanctions are expected to block Russia out of large parts of the international capital markets for a long time. Russia has been reluctant to give up its reputation as a reliable borrower, which was hard won after an economic crisis two decades ago when the government defaulted on ruble-denominated bonds.