Russia pushes ahead with ruble free float plans

By IAfrica
In Nigeria
Aug 18th, 2014

Russia’s central bank announced Monday it would intervene less in the foreign exchange market to support the ruble as it works toward letting the currency float freely by the end of the year.
Despite considerable turbulence in the markets due to the crisis in Ukraine and Western sanctions against Russia, the central bank said it had widened the range in which the ruble trades freely and that it would no longer intervene to smooth volatility within that range.
It also reduced the amount of its intervention, from $1 billion (747 million euros) to $350 million, before shifting the value of the ruble’s trading band.
The Bank of Russia said “the above-mentioned changes are carried out as part of the transition to an inflation-targeting regime,” which it noted requires “abandoning any measures to manage the exchange rate”.
Most Western central banks set an inflation target and adjust interest rates to try to ensure gradual increases in prices, leaving the currencies to float freely.
“The Bank of Russia plans to complete the transition to a floating exchange rate regime by the end of 2014,” it added in a statement.
The central bank added it expected the changes “will not have a significant impact on current ruble fluctuations” given the Russian currency has been trading in the middle of its band.
The ruble was showing slight gains in trading around midday (0800 GMT) at 36.026 to the US dollar and 44.229 to the euro.
The Russian central bank has been gradually reducing its support for the ruble over the past year as it prepares to shift to inflation-targeting.
However, that goal has been vigorously debated as the ruble has shed about 12 percent of its value against the dollar over the past year as the Russian economy slowed and investors spooked by the crisis in Ukraine pulled out money.
Moscow’s annexation of Crimea from Ukraine and tightening Western sanctions on the Russian economy have seen the ruble hit record lows against the dollar and euro, and during the month of March alone the central bank spent $22 billion defending the Russian currency.
The ruble has stabilised since and the bank has gradually reduced its intervention in the foreign exchange market to zero in July.
Markets were destabilised again at the end of July by the imposition of the first sector-wide sanctions against the Russian economy, but rebounded when Moscow imposed its own bans on US and EU food products.
To reduce capital flight, support the value of the ruble and limit price increases, the central bank has been gradually raising interest rates since March. The last hike at the end of July of half a percentage point took the rate to 8.0 percent.

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