the Bank of Russia implemented policy of managed floating exchange rate which
contributed to smoothing the influence of changes in external conditions’ on
Russian financial markets and the Russian economy as a whole.
The Bank of
Russia was intended to gradually decrease its influence on the exchange rate
dynamics and to create scope for the shift to a floating exchange rate regime,
which is an essential prerequisite for conducting the independent monetary
policy focused on ensuring the price stability by means of the interest rate
policy measures (the inflation targeting regime).
In 2005, the
Bank of Russia introduced a dual-currency basket (that consisted of the US
dollar and the euro) as the operational indicator of its exchange rate policy.
The Bank of Russia set the corridor for this operational indicator (the
operational band) and implemented FX interventions (rouble/USD
and rouble/euro conversion operations on Exchange as
well as OTC market; until 2005 the Bank of Russia implemented only rouble/USD conversion operations) on its boundaries to
limit excessive dual-currency basket value fluctuations. When shifting the
operational band’s boundaries the Bank of Russia took into account the balance
of payment dynamics and domestic FX market developments.
As the scale
of external operations of the Russian economy nominated in euro rose and the
euro segment of domestic FX market expanded the weight of euro in the
dual-currency basket was gradually increasing. In February 2007 the composition
of the dual-currency basket was fixed at 0.55 US dollar and 0.45 euro. Using
the operational band the Bank of Russia smoothed rouble
exchange rate volatility vis-a-vis other major currencies while promoting
more flexible exchange rate.
In the end
of 2008 — beginning of 2009, the Russian economy faced external shock of a
large scale induced by sharp changes of the situation on global financial and
commodities markets. In this situation the Bank of Russia modified its exchange
rate policy framework (see also the Bank of Russia Annual Report 2008 and
2009). In February 2009, the Bank of Russia set the rule for automatic shift of
the operational band related to the accumulated amount of the Bank of Russia’s
FX interventions and fixed the width of this floating band at 2 rouble. Since then the width of
the floating operational band was gradually increased to ensure shift to a more
flexible exchange rate.
2010, The Bank of Russia announced that the fixed band for the rouble value of the dual-currency basket was abandoned. The
fixed upper and lower boundaries set at the levels of 41 and 26 rouble respectively were effective from the 23 January
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.
The Bank of
Russia uses the rouble value of the dual-currency
basket consisting of 45 eurocents and 55 cents as the operational indicator for
FX policy implementation. The floating operational band, boundaries of which
are automatically adjusted depending on the amount of FX interventions, forms
the range of admitted values for dual-currency basket. Effective from 24 July
the width of the band amounts to 7 roubles.
mechanism for smoothing exchange rate volatility allows implementing purchases
or sales of FX currency not only on the boundaries of the band, but also inside
the band. The parameters of the Bank of Russia FX operations on domestic market
are determined by taking into account the goal of smoothing exchange rate
volatility and, effective from 1 October 2013, also given the Federal Treasury
operations related to accumulation or expenditure of Reserve fund and National
In order to smoothen the volatility of the rouble
exchange rate the dual-currency floating operational band is divided into
internal ranges. The particular volume of FX interventions (in million USD per
day) is determined for each range. At the same time the central part of the
floating operational band includes the “neutral” range, where the Bank of
Russia does not conduct interventions aimed at smoothing the volatility of the rouble exchange rate. The closer the value of the
dual-currency basket to the lower (upper) bound of the floating operational
band the larger the amounts of the Bank of Russia FX purchases (sales) of the
foreign currency, aimed at smoothing the volatility of the rouble
exchange rate. The volumes of the Bank of Russia operations, aimed at smoothing
the volatility of the rouble exchange rate, are set
symmetric relatively to the “neutral” range.
information on the above mentioned parameters of the Bank of Russia FX policy
implementation as of the 30 September 2013 is provided on Figure 1.
On 1 October
2013 the Bank of Russia informed that it is prepared for the implementation of
the new algorithm for accumulation (expenditure) of sovereign funds in foreign
currencies by the Federal Treasury.
As a result the amounts of the Bank of Russia FX operations on domestic
market aimed at smoothing the rouble exchange rate
volatility may be increased or decreased by the amount equal to the Federal
Treasury FX purchases (sales) with the Bank of Russia related to accumulation
(expenditure) of sovereign funds in foreign currencies. Such a correction of
the FX policy mechanism allows to transfer the demand for or
supply of foreign currency to domestic FX market and is presumed to be
one of the steps in creating conditions for transition towards flexible exchange
rate regime. This modification also allows softening the influence of the
Federal Treasury operations, related to accumulation or expenditure of
sovereign funds in foreign currencies, on the banking sector liquidity.
Federal Treasury takes decision on conducting FX purchases (sales) with the
Bank of Russia, the net amounts of the Bank of Russia operations inside the
internal ranges of the floating operational band become asymmetric.
In order to
split the internal ranges of the floating operational band, in which are or may
be implemented the operations of buying and selling foreign currency, the Bank
of Russia introduced an additional “technical” range within the floating
operational band. Inside the “technical” range the Bank of Russia does not
implement any FX interventions, including those related to the Federal Treasury
operations. The location of the “technical” range within operational band may
change depending on the direction and volumes of the operations, related to the
sovereign funds accumulation (expenditure). Effective from 1 October 2013 the
width of the “technical” range is set at the amount of 0.1 rouble.
from 1 October 2013 the parameters of the Bank of Russia FX policy mechanism
were set as presented on Figure 2:
parameters of the Bank of Russia FX policy implementation, modified according
to the Bank of Russia decision from 7 October 2013 on making the “neutral”
range 3.1 roubles wide (including the
“technical” range), are presented on Figure 3.
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.
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.
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.
of the automatic shift of the boundaries of the floating operational band is
presented on Figure 4.
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 boundaries of the
Bank of Russia floating operational band, on the parameters of operations in
the domestic FX market and on the amounts transacted, on the dual-currency
structure are published in the “Statistics” section (Table 1).
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