Russian central bank drops support for ruble

By bne IntelliNews August 19, 2014

bne -


The Central Bank of Russia (CBR) widened its corridor for the ruble and announced a cut in interventions on August 18. The central bank said the move is part of its effort towards a free-floating ruble, and comes despite the ongoing pressure on the currency due to geo-political tensions.

"The permissible range of the dual-currency basket ruble values (floating operational band) was symmetrically widened from 7 to 9 roubles, according to a CBR statement. The central bank added that it will no longer intervene in the foreign exchange market if ruble is within the permissible band; it has previously been intervening at specific levels.

The move, which takes the trading band against the mixed dollar/euro basket to 35.40 - 44.40, reverses a strengthening of exchange rate controls which was undertaken in March - the same month Russia annexed Crimea from Ukraine, procuring the wrath of the West. The same month, the CBR hiked its intervention threshold from $350m to $1.5bn. 

That allowed the central bank to pledge $25bn to support the currency after steep falls alarmed markets and aggravated capital flight as the population rushed to buy dollars. However, the CBR also took the threshold back to $350m as it returns its focus to inflation.

That support for the ruble over the last six months or so has clearly been important, however. The US and EU sanctions against Moscow over its alleged support for pro-Russian separatists in eastern Ukraine have left it one of the worst performing currencies in the world, recording new record lows against the dollar. 

The ruble is currently down around 9% against the US currency since the start of the year. It also continues to trade with high volatility. An unconfirmed claim from Ukraine on August 15 that it had destroyed part of a Russian military convoy saw the Russian currency drop 0.51% to finish the day at 41.70 against the basket, to leave it 6.4% below levels in June.


However, the CBR's move to reduce support was initially welcomed by the market, with the ruble strengthening 0.3% in the wake of the announcement, Analysts at SEB write that they "expect further steps to relax the control of the RUB to come in the months ahead." That said, they also warn that their 12-month outlook for the USD/RUB currency pair remains at 38.5, compared with a current range of 35.95-36.15. "We see the deprecation as a result of a weak economic outlook and a likely continuation of political uncertainty," they write.

"The stated changes have been made within the framework of moving to an inflation-targeting regime, one of the essential conditions for the successful realization of which is stopping managing the exchange rate," the central bank said, reiterating that it aims to move to a free float by next year. The CBR has announced that the ruble's trading corridor will be completely abolished by January 2015, and that regular daily interventions will cease, barring emergency interventions required to preserve financial stability.

Despite the ongoing pressure, analysts welcomed the move as proof of the CBR's determination to allow the currency float, particularly in the current environment. They also point out that it only makes another interest rate hike next month even more likely, albeit the ban on food imports from the West enacted in late July had already made that a shoe-in due to its effect on inflation.

"The central bank had recently said that it would take such a step, so [the] decision was unsurprising," suggest analysts at Sberbank. "The consistency in moving toward a freely floating RUB amid a worsening market environment is a strong testament to the regulator's resolve to shift to full-fledged inflation targeting. We expect one or two more basket adjustments later this year before the band is finally removed in January 2015. We could see a reduction in intervention volumes, further band widening, or both."

"We welcome the fact that despite persistently high geopolitical tensions, the CBR has returned toward a free-floating ruble," adds Alfa Capital's Natalia Orlova. "All else being equal, looser FX management suggests a higher reliance on interest rate policy tools, which speaks in favor of another rate hike during the next CBR BoD meeting in mid-September."

VTB Capital analysts also expect a rate hike in December: "[S]hould the RUB come under significant pressure, the CBR will be inclined to increase rates further, citing inflationary risks related to FX pass-through. That said, the probability of a rate hike at the next meeting has increased in any case in light of elevated food inflation."

Related Articles

Drum rolls in the great disappearing act of Russia's banks

Jason Corcoran in Moscow - Russian banks are disappearing at the fastest rate ever as the country's deepening recession makes it easier for the central bank to expose money laundering, dodgy lending ... more

Kremlin: No evidence in Olympic doping allegations against Russia

bne IntelliNews - The Kremlin supported by national sports authorities has brushed aside "groundless" allegations of a mass doping scam involving Russian athletes after the World Anti-Doping Agency ... more

PROFILE: Day of reckoning comes for eccentric owner of Russian bank Uralsib

Jason Corcoran in Moscow - Revelations and mysticism may have been the stock-in-trade of Nikolai Tsvetkov’s management style, but ultimately they didn’t help him to hold on to his ... more

Register here to continue reading this article and 2 more for free or 12 months full access inc. Magazine and Weekly Newspaper for just $119/year.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

IntelliNews Pro subscribers click here

Thank you. Please complete your registration by confirming your email address. A confirmation email has been sent to the email address you provided.

Thank you for purchasing a bne IntelliNews subscription. We look forward to serving you as one of our paid subscribers. An email confirmation will be sent to the email address you have provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

If you have any questions please contact us at

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

IntelliNews Pro subscribers click here

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

Thank you. Please complete your registration by confirming your email address. The confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.