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Bank of Russia FX policy
August 6, 2015 17:02

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The Bank of Russia conducts FX policy under managed floating exchange rate regime. This implies that the Bank of Russia does not prevent market trends in dynamics of the rouble exchange rate, which are induced by macroeconomic fundamentals, meanwhile smoothing excess volatility of the rouble exchange rate in order to ensure gradual adaptation of economic agents to exchange rate fluctuations. Any fixed constraints for the level of the rouble exchange rate or any target levels are not set.
Effective from 22 May 2014 the Bank of Russia decreased FX intervention volumes in the internal ranges of the floating operational band by $100 million to smooth the volatility of the rouble exchange rate. Effective from 17 June 2014 these volumes were again decreased by $100 million. Effective from 18 August 2014 the Bank of Russia set FX intervention volumes aimed at smoothing the volatility of the rouble exchange rate equal to $0 in the internal ranges of the floating operational band.
The adjustment of the of the dual-currency floating operational band is realized automatically as soon as the cumulative volume of FX interventions reaches the predetermined level. Between 10 December 2013 and 2 March 2014 the parameters for the shift of the floating operational band were set as follows: when the cumulative volume of the Bank of Russia FX purchases (sales) reached $350 million the boundaries shifted automatically down (up) by 5 kopecks. Starting 3 March 2014, given the increased volatility in the domestic FX market, the cumulative volume of FX interventions of the Bank of Russia was increased to the level of $1,500 million to limit rouble exchange rate fluctuations. Starting 17 June 2014, this value was decreased to the level of $1,000 million. Effective from 18 August 2014 the cumulative volume of the Bank of Russia FX interventions was decreased to the prior level of $350 million.
At the same time the amount of target interventions, which is used for managing flexibility of the floating operational band, is not included in the calculation of the aforementioned cumulative volume. This parameter does not affect the volume of the FX operations implemented by the Bank of Russia, it is applied only for calculating the volume of the interventions, accumulated for the shift of the band. If the net volume of the Bank of Russia FX operations, aimed at smoothing the volatility of the rouble exchange rate, exceeds the target interventions level during a day, the difference between these amounts is accumulated for the subsequent shift of the floating operational band boundaries during the trading day or in further days, when the set cumulative threshold will be reached. In the context of the ongoing transition to the floating exchange rate by 2015 Bank of Russia has step-by-step cut the amount of target FX interventions. Effective from 13 January 2014 the mentioned amount equals $0 per day.
Until 5 November 2014, as the ruble value of the dual-currency basket reached the upper/lower border of the floating operational band, the Bank of Russia carried out unlimited foreign currency sell/buy operations. From 5 to 7 November 2014, as the ruble value of the dual-currency basket reached the upper/lower border of the floating operational band, the Bank of Russia carried out foreign currency sell/buy operations with the intensity equal to $350 million per day. Meanwhile, the automatic rule of operational band borders adjustment remained valid.
From 10 November 2014, the Bank of Russia abolished the exchange rate policy mechanism through cancelling the permissible range of the dual-currency basket ruble values (operational band) and regular interventions on and outside the borders of this band. However, the new approach of the Bank of Russia to operations in the domestic market does not provide for complete abandonment of foreign exchange interventions, which can be implemented in case of financial stability threats.
The information on the implementation of Bank of Russia FX policy is published in the Bank of Russia Annual Reports, the Single State Monetary Policy Guidelines and the Monetary Policy Reports, information on the adjustments of the mechanism of the Bank of Russia FX policy implementation and its parameters — in the section “Press releases on monetary policy”.
Data on the dynamics of the borders of the floating operational band, on the parameters of the Bank of Russia operations in the domestic FX market acting until 7 November 2014 and on the amounts transacted, on the dual-currency structure are published in the “Statistics” section. 

Author: Mikhail Vesely

Tags: Russian banks Central Bank    

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