The year of the ruble under the sign of freedom


MOSCOW, 10 Nov. Free ruble on Tuesday marks its first anniversary: exactly a year ago, the Bank of Russia abolished the acting mechanism of the currency corridor and refused to conduct regular interventions, reserving the right to hold them in the event of a threat to the financial stability of the country.

About plans of transition to a floating exchange rate, the Central Bank said a long time plans were announced by the leadership of the regulator in the middle of “zero”. It was necessary to pursue a policy of inflation targeting, but the process was delayed and the issue was raised only in November 2014.

The Central Bank initially planned to release rouble in “free swimming” by January 2015, but the tense situation on the currency market due to the increased activity of speculators, the problems in the economy and geopolitical factors have only seen the controller. These factors combined have forced the Central Bank to hold the transfer for two months ahead of schedule.

Free floating exchange rate system floating exchange rate in which the authorities do not try to influence market demand and supply of foreign exchange.

In General, the actions of the regulator were positively received by the expert community and the government. By and large, the only thing that caused the criticism — terms “dismantling” of the corridor. Most economists noted that the transition to a floating exchange rate needed to make before, that would save some of the currency reserves. For the whole of last year the country’s international reserves “lost weight” by more than $ 120 billion.

Background

The regime of managed floating exchange rate was introduced in 1999 under Viktor Gerashchenko, who was then the head of the Bank of Russia. This policy has helped to smooth out the impact of changes in the external economic environment in the Russian financial markets and the economy as a whole. In the management of the exchange rate to the regulator helped, in particular, the currency corridor, which was first introduced on July 8, 1995 with reference to the US dollar.

Since 2005 the Bank of Russia as an operational benchmark of its exchange rate policy started to use the rouble value of the dual currency basket comprising the dollar and the Euro. The regulator establishes the intervals of admissible values for the exchange rate, and if the exchange rate reaches these extreme values, the Central Bank conducted foreign exchange intervention. Such a policy, on the one hand, provide market factors exchange rate and allowed Central Bank to mitigate excessive fluctuations of the national currency.

The need to change the exchange rate policy became evident during the global financial crisis of 2008-2009, which also affected Russia. In February 2009 the Central Bank started to use the mechanism of automatic change of borders of a currency corridor — depending on the range of ongoing interventions. However, the controller adjust the mechanism as needed.

Saving private ruble

Although the regime managed float for some time it was possible to smooth fluctuations, during the crisis in 2014 to “save” the ruble he could not. The first alarm bell rang in March last year amid the political crisis in Ukraine. Then sharply increased volatility on the foreign exchange market and the Central Bank to overcome it had to spend huge amounts.

In the month the regulator sold the currency to $ 22.3 billion and 2.3 billion euros — the volume, comparable with interventions of late 2008 — early 2009. However, six months later, the Central Bank increased the sale of foreign currency in October 2014 was sold of $ 27.2 billion and € 1.6 billion.

Just after the October sales of foreign currency by the Bank of Russia have any understanding of what the country has to pay for the “salvation” of the ruble exorbitant price: the continuation of such policy could “burn the reserves”. On the other hand, the ruble was in no hurry to grow, despite all the efforts of the regulator and the government, which did not skimp on the currency, and verbal interventions.

Another factor playing against the ruble, currency speculators: the Central Bank’s policy was quite predictable, which allowed speculators to form a strategy for the game on exchange rates. Their activities drew the attention of even the President of the Russian Federation Vladimir Putin. In his address to the Federal Assembly in December last year, he warned the currency speculators, “swinging” the ruble that their actions will not go unpunished.

Considering all factors, the Central Bank decided to accelerate the transition to a floating exchange rate of the ruble. Key changes in exchange rate policy was adopted pretty quickly. November 5, 2014, the Central Bank limited the amount of intervention 350 million dollars a day, and with November 10, completely abolished the limits of the currency corridor and abolished the regular intervention. While the regulator has reserved the right to conduct foreign exchange intervention in case of threats to financial stability.

The results, pros and cons

The main result of the change in monetary policy the Central Bank was that the ruble began to take shape under the influence of market factors. Thus, on the one hand, the population felt all the “charms” of cheap ruble: imported goods become much more expensive and less available. With another — from the depreciation of the ruble won export companies, brings the main income to the budget, and thus won himself the country’s budget.

“The collapse in the value of the course greatly helped the profitability of Russian companies in 2015, unlike the 2008 crisis, increased their profits, not reduced. It was partially due to a sharp improvement in financial performance of our exporters, but also companies operating in the domestic market, there was a serious possibility to raise prices in conditions of soaring imports,” says chief analyst of Sberbank Mikhail Matovnikov.

Therefore, he adds, results in improved profits not only exporters but also other Russian companies.

However, the fact that the ruble already a year assumes all the consequences of external shocks, helped “save” the reserves of Russia. “Otherwise we’d have to spend a significant amount of foreign exchange reserves to support the exchange rate. That is, the transition to the floating exchange rate was not only planned, but forced,” continues Matovnikov.

However, the change in monetary policy the Central Bank is not without its negative consequences. The head of the Board of Directors of MDM Bank Oleg Vyugin draws attention to the fact that the high volatility of the ruble sharply increased transaction costs in the domestic economy, as external trade accounts for almost half of Russia’s GDP.

“Turned out that due to high inflation the cost of credit remains prohibitive, and the exchange rate ceased to play the role of “anchor.” If the monetary authorities will not solve the problem of radical inflation in the next year or two and will not make loans to non-financial sector enterprises, the transition to a new floating rate regime, the economy is unlikely to be fruitful,” said Vyugin, who previously held the position of Chairman of the Central Bank.