The Option of Unexpected Interventions by the Central Bank of Russia will Contribute to Higher Prudence of Market Players
On November 10, the Central Bank of Russia announced the abandonment of the existing mechanisms of the exchange rate policy by giving up both the use of the interval of admissible values of the ruble cost of the bi-currency basket and regular interventions not only at the limits of the interval, but also beyond them.
It is to be noted that the Central Bank of Russia has reserved the right to carry out currency interventions if the financial stability is under threat. It is to be reminded that earlier the volume of currency interventions carried out by the regulator was limited at the level of $350m a day.
So, in November 2014, the Central Bank of Russia actually switched over to a floating exchange rate. Though in accordance with methods of the IMF, the floating exchange rate permits not only indirect methods, but also direct ones to control the dynamics of the exchange rate, that is, purchase and sale of foreign currency on the domestic foreign exchange market in order to prevent excessive exchange rate fluctuations, within the frameworks of the above regime the movement of the exchange rate was mainly determined by market factors.
The option of unexpected interventions by the Central Bank of Russia will contribute to higher prudence of market players with taking into account the fact that at the present moment the ruble exchange rate is close to its settlement value justified by fundamental factors such as the state of the economy of the Russian Federation and its balance of payments.
In our view, the decision of the Central Bank of Russia to switch over to a floating exchange rate is a correct one and it is to be noted that ineffective spending of international reserves could stopped earlier.
Аnna Kiyutsevskaya, PhD (Economics), Senior Researcher