Russia: The CBR amends its exchange rate regime
Overview:
The Central Bank of Russia (CBR) has announced the elimination of the wide corridor for the Euro/US$ basket and increased the narrow corridor. The move is part of the transition to an Inflation Targeting. The authorities have been quick to emphasize that this step is not some form of competitive devaluation. Indeed, the upper limit of the band was never really tested nor is likely to be without significantly lower oil prices. The ruble has, though, weakened somewhat in recent months against the basket after a strong H1 2010. The government is keen that ruble appreciation does not undercut the solid but far from exceptional economic recovery underway. The balance of payments situation is also mixed. High oil prices are delivering a large current account surplus but this is partially offset by outflows on the capital account.