A Russian official admits sanctions are crippling the economy as the country grapples with mass selling and shortages

The ruble may not show it, but Western economic sanctions against Russia are paying off.

Revealing her testimony before the Duma parliament, the head of Russia’s Central Bank (CBR) told the country’s lawmakers that she had to dump everything but just the kitchen sink to prevent a complete run on the banking system.

“The sanctions against Russia affected the situation in the financial sector, stimulated demand for foreign currencies, caused the sale of financial assets, cash outflows from banks, and increased demand for goods,” Elvira Nabiullina said in prepared remarks published for the first time. In English on Friday.

The frank assessment of Russia’s economic problems contrasts sharply with the political attacks launched against the current US administration because of the sanctions policy that failed to force Vladimir Putin to the negotiating table.

Presenting the CBR’s annual report to Parliament this week, Nabiullina painted a picture for lawmakers of just how bleak the situation he faced.

Depositors withdrew 2.4 trillion rubles in the first weeks after the outbreak of the war, devouring a year’s worth of bank profits and a third of the accumulated capital reserves.

Without strict capital controls, she said, there would have been a “chain of defaults and a domino effect” throughout the financial system.

It doesn’t end there, either, not for long, because companies have flashbacks to what it was like when the coronavirus pandemic hit.

Loan leave has been resumed. Currently, the demand for it can be compared to the first month [of] 2020 insurance.

Several deferrals have also been granted that facilitate regulatory requirements for banks, while allowing accountants to effectively freeze the value of assets on their balance sheets at artificially high levels before the crisis.

Reducing it to reflect the reality of the Russian economy’s contraction would only lead to a crippling wave of deleveraging among lenders — either through divestment, credit pulling for the economy, or a combination of both.

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She acknowledged that “the amount of regulatory easing today is unprecedented,” noting that the easing measures were not commensurate with the scale of the problems it faces.

Since foreign reinsurers cancel their contracts with Russian companies, the Central Bank of Napoleon was forced to increase the guaranteed capital of the Russian National Reinsurance Company tenfold to ensure that it had sufficient reserves to cover insured losses.

The pain only starts now

While all of these and many more measures put in place by the CBR have prevented a collapse in the banking system, companies that lack key raw materials and are choked off from their export markets will face great pain as they scramble to adapt.

“The sanctions have affected the financial market, but now they will begin to affect the real economy increasingly,” the governor said.

Although inflation exceeded 9% in February, its MPC will target a return to just 4% for 2024. It will not intervene if consumer prices rise in the meantime.

This is a natural and inevitable process as supply chains adjust to sanctions, Nabiullina said. In other words, the central bank is powerless in this respect because raising the benchmark interest rate by 17% will not solve the upcoming constraints on the supply side.

“Right now, this problem may not be severe because the economy still has stocks, but we can see that sanctions are being tightened almost every day,” Nabiullina added, predicting that there was no way of knowing how long they would likely last.

“Already in the second quarter, the beginning of the third, we will actively enter a period of structural transformation and the search for new business models for many organizations.”

Translation: Russian companies did not even begin to feel the pain.

This story originally appeared on Fortune.com