Record Changes in the Limits of the Currency Band is the Result of Higher Flexibility of the Exchange Rate Policy of the Central Bank of Russia
On January 27, the limits of the currency band moved straight 15 kopecks upwards to the marks of Rb 33.65 and Rb 40.65. It is to be noted that in the beginning of the month the lower limit of the currency band was Rb 33.05, while the upper, Rb 40.05. It is to be noted that in January the currency band was adjusted ten times and due to that its limits shifted by 60 kopecks which value largely exceeded the adjustments of the previous months.
For comparison: in September when the Central Bank of Russia started an active transformation of the mechanisms of the exchange rate policy having reduced the value of the accumulated interventions which resulted in a 5 kopeck adjustment of the currency band fr om $450m to $400m the limits of the currency band moved 15 kopecks upwards. Growth in the currency exchange rate in September was caused by aggravation of budget problems in the US wh ere the two leading parties failed to reach an agreement on the draft budget for the next fiscal year.
In October, the situation on the foreign exchange market stabilized to some extent and the limits of the currency band moved only 5 kopecks upwards which situation permitted the Central Bank of Russia to declare at the end of the month about the reduction of the volumes of target interventions to $60m a day. As a consequence, in November the limits of the currency band were adjusted seven times, while their aggregate change amounted to 35 kopecks. A similar change in the limits of the currency band took place in December even despite the fact that at the beginning of the month the regulator declared about the next reduction of the value of the accumulated interventions to $350m.
It is to be reminded that early in January the Central Bank of Russia took a decision to stop target interventions and that situation resulted in a high volatility of the ruble exchange rate. As a result, the movement of the exchange rate is determined by the market factors which reflect the state of both Russian and global economies.
The current depreciation of the ruble appears to be quite logical. Firstly, in 2013 the growth rates of the Russian economy slowed down to 1.3% and yielded to the dynamics of the US economy whose growth according to the IMF estimates would amount to 1.5%–1.6%. Secondly, in 2013 the current operations surplus of the balance of payments of the Russian Federation decreased by over 50% amounting to $33bn ($72bn in 2012). Thirdly, in 2013 the net outflow in the financial account (without taking into account operations of the Central Bank of Russia) grew to $43bn (from $26.5bn in 2012). And, finally, late in December the US Federal Reserve declared about a $5bn reduction in the volumes of repurchasing of both mortgage backed bonds and Treasury bonds. From January, the total volume of purchasing of financial assets of the US Federal Reserve was reduced to $75bn. (earlier the regulator used to buy $85bn worth of bonds a month). The above points to the fact that the US stimulus program is being gradually scaled down and the interest rates in the US will consequently be raised so the US dollar will be more attractive as compared to other currencies.
As a result, earlier this year national currencies of other major developing countries depreciated against the US dollar, as well. In January, the average monthly exchange rate of the Turkish lira depreciated considerably (by 6.7%) as compared to December, the Indonesian rupiah lost 2.8%, while the Mexican peso and the Brazilian real went down in value against the US dollar by 1.5% and 1.2%, respectively. So, the current 2.1% depreciation of the Russian ruble is in line with global trends and reflects higher flexibility of the exchange rate policy of the Central Bank of Russia.
А.М. Kiyutsevskaya, Senior Researcher