Central Bank increases the flexibility of exchange rate policy

On July 24, the Bank of Russia has expanded the range of the two-currency basket fr om Rb 6 to Rb 7. This is stated in the information materials of the Bank of Russia.

In addition, the Regulator has reduced the amount of accumulated monetary interventions, which were leading to the changes in the operating range by 5 kopecks, from $500m to $450m. Recall that from December 27, 2011 the operating range has been increased from Rb 5 to Rb 6, and the lim it intervention was also reduced from $600m to $500m.

The information on reduction of the maximum amount of accumulated monetary interventions, which were leading to the changes in the operating range demonstrates further increase of the Central Bank of Russia flexibility in exchange rate policy. In general, the Bank of Russia actions demonstrate a gradual abandoning the exchange rate regulation in the framework of transition to inflation targeting.

Over the period of instability in the foreign exchange market in autumn 2011, as well as in spring 2012, the Bank of Russia was demonstrating its willingness to minimize intervention in the foreign exchange market, allowing significant fluctuations of the ruble nominal exchange rate. This policy reduces the amount of speculations in the foreign currency market, since it reduces the predictability of the exchange rate dynamics.

P.V. Trunin, PhD, Head of Monetary Policy Department