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Bank of Russia abandons exchange rate policy mechainsm

FXStreet (London) - According to a release by the Russian central bank, effective from today, the Bank of Russia abolished the exchange rate policy mechanism through cancelling the permissible range of the dual-currency basket ruble values (operational band) and regular interventions within and outside the borders of this band.

Exchange rate liberalisation

However this move does not constitute a complete rejection of intervention by the Bank of Russia in its currency. It will still intervene in the case of what it perceives to be financial stability threat.
In theory, the removal of the operational band of dual-currency ruble values means that the currency will be free-floating and moves away from the central bank’s policy of the sale of $350 million a day if the rate of the ruble drops below the lower band – a move that was announced this week by Bank of Russia head Elvira Nabiullina. However, the scope of what constitutes a “financial stability threat” is likely to be a wide one, at least in the short to medium-term.

The ruble has declined 25 percent against the dollar in the year-to-date, with the Bank of Russia estimating that capital flight from Russia is set to reach USD128bn this year.

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