The Bank Rossii, only a month ago, was talking about the ruble reaching a point where it would not see central bank intervention and have a market created exchange-rate. However, the massive sell-off in emerging market currencies took the ruble to the woodshed. The Russian central bank bought the most rubles since 2012 and plan to conduct foreign exchange interventions regularly.
A statement from the central bank indicated that it would intervene “without quantitative limits” until the ruble reaches to the target band. Vladimir Osakovskiy, chief economist at Bank of America Corp. in Moscow, said “it sounds like they are stepping up, even though they are not.” This is in regards to the central bank only reiterating current policy. “Few people have seem to have actually read them,” he said.
Bank Rossii has slashed its gold and FX reserves to the lowest levels since 2011 because of the $29 billion spent lifting the ruble and smoothing out volatility. The bank may be in for a rude awakening as continuous interventions may signal a reason for more selling. “Expectations of ruble depreciation have strengthened, with the central bank’s interventions convincing the market that the ruble is overvalued,” said Evgeny Gavrilenkov, an analyst at Sberbank CIB.
Currently, the Bank Rossii allows the ruble to trade in a fixed band of 33.95 to 40.95 against a basket of key currencies, including the dollar and euro.