Exchange Rate Policy

On 27 December, the Bank of Russia widened the ruble's trading band against its target dollar-euro basket from 5 to 6 rubles. At the same time, the regulator will now shift the borders of the basket's corridor by 5 kopecks after buying or selling $ 500m worth of foreign currency. The previous amount for a trading band shift was $ 600m.

It should be noted that, from 1 March 2011 onwards, the ruble's trading band was increased from 4 to 5 rubles, while the maximum amount for a trading band shift was reduced from $ 650m to $ 600m.

The news of yet another reduction in the amount for a trading band shift is indicative of a gradual increase in the flexibility of the RF Central Bank's exchange rate policy. On the whole, the RF Central Bank's actions bear witness to its abandoning control over the ruble's exchange rate within the framework of transition to inflation targeting.

Over the course of 2011, the Bank of Russia repeatedly demonstrated its readiness to minimize its interference in the functioning of the foreign exchange market by permitting the nominal exchange rate of the ruble to considerably fluctuate. This policy enables the Bank to significantly reduce the volume of profiteering in the foreign exchange market by decreasing the predictability of the behavior of the ruble's exchange rate. However, it should be noted that the degree of the Central Bank's adherence to the policy of non-interference can be properly assessed only in conditions of a rapid decline in the ruble's exchange rate, coupled with political pressure on the Bank of Russia to prevent the weakening of the ruble.

P. V. Trunin, Candidate of Economic Sciences, Head of the Monetary Policy Department

Wednesday, 28.12.2011