Russia Persists in Ruble Flexing in Face of Geopolitical Uncertainty

The Russian Central Bank plans to facilitate a free-floating Ruble without regular market intervention. The ambitious plans are being challenged

cbrRussia’s central bank, the Central Bank of Russia (CBR), has widened the exchange rate corridor for the national currency – the Russian ruble. The exchange rate corridor was raised from 7 to 9 rubles effective as of Monday 18th August.

The CBR also reduced the intervention threshold from $1 billion to $350 million. Both moves were designed to “allow the currency more flexibility,” according to a statement by the Central Bank of Russia on Monday. Today’s move by the CBR reverses its March decision to raise the intervention threshold from $350 million to $1.5 billion, in order to contain the sharp ruble selling caused by the escalating crisis in Ukraine that has led to uncertainty among investors regarding Russia’s financial stability.

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The widening comes at a pivotal time with various economic and political issues straining Russia’s international relations with other countries. The ongoing geopolitical conflict in the Ukraine and the subsequent economic sanctions that followed the initial annexation of Crimea have strained Russia’s relations with the West, the United States in particular. Speculations have been raised that Russia is actively considering pricing its raw commodities exports in alternative currencies other than the U.S. dollar and engaging in international trade agreements with other countries, such as Brazil, China and India in order to challenge the international economic hegemony of the United States and the U.S. dollar. In May, Russia’s Minister of Finance, Anton Siluanov, was quoted as saying that Russia is “looking at ways for major state-owned exporters such as energy giants to be paid in rubles.” He later added, “We are preparing a mechanism, we are working on it.”

The CBR aims to facilitate a free-floating ruble without the need for regular market interventions by January 2015, with inflation becoming the core focus for the central bank. However, the ruble has been very volatile in 2014 primarily due to geopolitical factors, making that aim much more difficult to achieve.

The USD/RUB rate fell from a Friday close of 36.00 to as low as 35.76 in early trading on Monday. The exchange rate has since recovered, trading at 36.02 at the start of the European trading session.

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