Russia’s Central Bank has opened up the rouble trading range with the aim of reducing its need to intervene, marking further progress towards market mechanisms in managing the Russian currency.
Alexei Ulyukayev, first deputy president of the Bank of Russia, has announced that it is canceling the fixed exchange rate corridor of 26-41 roubles to the Euro-Dollar currency basket it is currently managed between. At the same time he announced that the daily operating range would be increased from 3 roubles to 4.
"Starting from today we are cancelling the fixed borderers of the corridor, which was within a range of 26-41 roubles against the bi-currency basket, set on January 23, 2009."
Ulyukaev added that with the Bank of Russia also cutting the value of adjusting interventions from $700 million to $650 million dollars, Russia’s currency market will increasingly reflect supply and demand, with a more volatile rouble helping to reduce the carry trade and limit speculator activity.
“In fact, we rejected a tight currency corridor, we have a floating one, where we operate, both inside it and its borders…, which makes it more difficult for market speculators to work out their strategies and smoothens intraday and longer term currency fluctuations.”
Commenting on Russia’s future monetary policy, Ulyukaev also noted that the central bank was primarily interested in the structure of economic growth, not its speed. Ulyukaev said monetary policy should provide for minimum risks, currency upheavals, budget deficit and stable social spending, and added that the Bank of Russia believes that reduced budget injections and currency interventions will help cut the inflation in 2011 to 7% and keep the rouble stable.
“I don’t care that much about the number, the growth structure is important, we need to reindustrialize the country, to go away from the mono basis of a trade balance.”
Analysts in Russia mostly view the move as positive, with Peter Aven, President of Alfa Bank, saying to Vedomosti that, for now, this is the best possible world practice.
“The whole world is heading to a free float of currencies, so despite possible side effects, economists haven’t so far created anything better.”
Evgeny Gavrilenkov, chief economist at Troika Dialog, thinks the move will also positively impact rouble savings, as it’ll become more difficult to make forecasts concerning dollar and euro rates.
However, Sergey Aleksashenko, an expert in macroeconomic studies from the Higher School of Economics, played down the move, saying it could have little impact on real economic challenges.
“This situation is all sustainable in the long run. Despite any technical decisions, despite the existence or elimination of the narrow or wide currency band, Central Bank will have to react to fundamentals but not to the current situation on the market.”