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Bank of Russia Limits FX Intervention, Ruble Hits Record Low

Bank of Russia Limits FX Intervention, Ruble Hits Record Low

2014-11-07 13:32:00
Walker England, Kara Dailey,
Bank of Russia Limits FX Intervention, Ruble Hits Record Low

Talking Points:

  • Rubble hits historic low as dual-currency basket reaches 50.2972
  • Ruble FX intervention to not exceed $350 million per day
  • USD/RUB on a 12 week streak of higher highs

Amidst an effort to become a free float currency by 2015, the Russian Ruble recorded a record low against the US dollar and Euro on Wednesday. The dual-currency basket, as calculated by the Bank of Russia, rose from a 2010 low of 34.6531 to the present high of 50.2972 following the central bank’s announcement to limit the amount of forex intervention.

With Russia facing ever slumping oil prices, sanctions over their involvement in Crimea, and halted economic growth the central bank spent nearly $48 billion or 10.5% of their foreign exchange reserves to defend the ruble between January and September. However the ruble continued to depreciate rendering their efforts futile; they have since changed course.

Through a communiqué the bank announced that intervention to defend the ruble would not exceed $350 million per day, a figure that was previously unlimited. In addition to transitioning from a managed to free float currency system, the bank hopes the move will reduce speculative strategies by eliminating the preconceived notion that they will always intervene to defend the ruble.

To ease concerns, in a follow-up release the bank introduced 12 month repurchase agreements and announced the continuation of FX Repos initiated in October. Both measures are to total 50 billion USD through 2016 and reduce pressure on the ruble exchange rate as the need for foreign currency intensifies. It was also noted that if a threat to financial stability does arise than the bank is prepared to provide additional aide including another rise in the interest rate which currently stands at 9.5%.

After closing at 44.812 the day of the announcements, the USD/RUB has traded today at a high of 48.651, continuing towards a 12 week streak of higher highs. Current resistance sits at 48.00 which is a 1.618% extension of the previous price swing higher.

Daily USD/RUB Chart

dailyfx Russia Ruble USD daily Chart.

Chart Created by Walker England Using MarketScope2.0

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