On the situation in the FX market
The ruble exchange rate and its influence on the financial and real sectors of the economy have recently caused public concern. The ruble’s depreciation was prompted by a number of fundamental factors, first of all, by the falling price of oil and limited access to external capital markets.
In order to hamper the ruble’s depreciation in October alone the Bank of Russia conducted interventions for the amount of USD 30 billion.
The decisions taken by the Bank of Russia on 5 November 2014 to change the exchange rate policy mechanism along with a rise in the key rate and introduction of FX repos are only a part of measures aimed at ensuring financial and price stability amid new economic conditions.
Changes in the exchange rate policy are designed for the ruble to shortly reach an equilibrium value, to lower the excessive rate of reserve spending, and to prevent stable depreciation expectations amid the ongoing weakening of the ruble. Moreover, this decision will minimise the impact of FX market operations on the structural liquidity deficit. Thus, the exchange rate flexibility will make it possible to mitigate the impact of external shocks on the financial sector and the economy as a whole.
As a result of the decision taken, the exchange rate has begun to be adjusted, which is accompanied by increased volatility. The FX market adaptation to the new exchange rate policy mechanism will take some time, in the course of which the exchange rate may fluctuate in different directions.
According to Bank of Russia estimates, with due account of the measures taken and the occurred decline in the exchange rate, there is no need for the ruble to depreciate further to reach the balance of payments equilibrium.
The signs of feverish demand have been registered recently, which entails risks to financial stability. Against this backdrop the Bank of Russia is prepared to increase FX interventions at any moment, as well as to use other financial market instruments available.
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