The Central Bank of Russia will Enter the Foreign Exchange Market Only in Case of Dramatic Changes in the Exchange Rate

On October 8, the Central Bank of Russia reported that from October 7 it expanded from Rb 1 to Rb 3.10 the "neutral" band of the operating interval of the permissible values of the ruble cost of the bi-currency basket.

It is to be noted that the value of the operating interval remained unchanged at the level of Rb 7. At present, that interval amounts to Rb 32.30 to Rb. 39.30.

It is to be reminded that the operating interval of the bi-currency basket is used by the Central Bank of Russia in implementation of the exchange rate policy. It is to be noted that in the middle of that interval there is a "neutral" band within which the Central Bank of Russia does not make any currency interventions. If the exchange rate of the ruble goes beyond the limits of that "neutral" band, the Central Bank of Russia will start interventions whose value increases as the exchange rate moves closer to the limits of the operating interval. If the accumulated volume of interventions within a day amounts to $400m (without taking into account planned interventions whose maximum volume amounts at present to $120m a day), the limits of the operating interval automatically change by 5 kopecs.

The above decision means that the Central Bank of Russia will carry out fewer interventions with insignificant fluctuations of the ruble, but it will enter the foreign exchange market only in case of dramatic changes in the exchange rate. Generally, the above decision fits the logic of gradual raising of flexibility of the exchange rate formation mechanism within the frameworks of a switch-over to the inflation-targeting regime by the year 2015.

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