Higher Volatility of the Ruble Exchange Rate was Expected

Within September, the value of the Russian ruble against the US dollar fell by 4.9%, while that of Brazilian real and South African rand, by 3% each. The Indonesian rupee and Indian rupee depreciated by 1.6% and 0.07%, respectively. Prevailing tensions on global financial and foreign exchange markets, as well as further scaling down of monetary easing programs by the US Federal Reserve exert a considerable pressure on exchange rates of currencies of developing countries. In such a situation, the Russian ruble is most vulnerable taking into account the risks caused by sectoral sanctions which were introduced against Russia.

At the same time, strictly following its earlier declared plans to switch over to a floating exchange rate, fr om June 24 the Central Bank of Russia has not carried out interventions on the foreign exchange market, that is, for more than three months the ruble exchange rate has been formed under the effect of market factors only. So, the span of the operating interval (9 rubles) permits to cushion not only the effects of fundamental macroeconomic factors which determine the downward exchange rate trend, but also those of speculative trends. However, within the operating interval the volatility of the ruble exchange rate keeps growing. For example, in September the average intra-day fluctuations of the ruble value of the bi-currency basket amounted to 45 kopecks against 30 kopecks a month earlier.

In our view, higher volatility of the ruble exchange rate was predictable. The new reality for the Russian economy became the consequence of not only foreign tensions, but also gradual easing of the regulation effect by the Central Bank of Russia. The above can be confirmed by the fact that though the maximum ruble value of the bi-currency basket amounted to Rb 44.45 during trading on September 30, thus slightly exceeding the upper lim it of the operating interval set at the level of Rb 44.40, the Central Bank of Russia restrained from carrying out interventions and by doing so demonstrated its commitment to the declared monetary policy. It is to be noted that if on September 30 the US dollar reached its historic maximum having exceeded the value of Rb 39.80 for $1, on October 1 it fell to Rb 39.75 for $1. So, nonintervention of the Central Bank of Russia to the foreign exchange market permitted to calm down speculative expectations of foreign exchange players and confirmed its commitment to the floating exchange rate.

Due to the above, in our view, introduction by the Central Bank of Russia of any forms of control over capital flows is highly unlikely. It is to be noted that the Central Bank of Russia did not resort to limitation of trans-border capital flows either during the 2008–2009 crisis, or during the post-crisis revival, while such a practice was widely used by monetary authorities of developing countries. Such mechanisms were applied, for example, in Argentina, Brazil, Indonesia, South Korea and Ukraine. The more so, according to the Guidelines for the Unified State Monetary Policy in 2015 and the 2016-2017 Period the Central Bank of Russia plans to carry out the exchange rate policy within the frameworks of the floating exchange rate the switch-over to which rate is to be completed before the end of 2014 does not envisage utilization of direct methods of control over capital flows. However, the flexible mechanism of the foreign exchange rate policy developed by the Central Bank of Russia permits in case of occurrence of force-majeure events as it happened in the beginning of this year to prevent the panic on the foreign exchange market.

Pavel Trunin, PhD (Economics), Director for the Center for Macroeconomics and Finance,
Аnna Kiyutsevskaya, PhD (Economics), Senior Researcher