The Bank of Russia has extended the forex fluctuations band

This move constitutes the CBR's reaction to an intense capital flight out of RF, which is steered by the global financial crisis. The capital flight fuels considerable sales of Rubles for foreign exchange and, consequently, a downward pressure on the exchange rate of the Ruble, which is further intensified by the price downfall for energy sources and metals, which generates compression of the positive balance of the current account of Russia's balance of payments. During recent months, CBR has been backing the Ruble's exchange rate by selling its foreign reserves, because of which between August 1 and November 1 they shrank by 18.8% (USD 112 bn).

Obviously, under the continuous downfall in prices for Russia's major exports and the capital flight a further support of a constant value of the bicurrency basket would result just in a complete exhaustion of the nation's foreign reserves and a subsequent sharp depreciation of the national currency. We assume that a gradual depreciation of the Ruble appears a more justifiable and less painfull for the national economic agents move.

P. Trounin, Head of the Department of monetary and credit policy