The Central Bank of Russia keeps increasing the limit of bi-currency band

On February 24 the Central Bank of Russia increased the limit of bi-currency band on 5 kopecks to RUR 35,05 – 42,05 for the 13th time within a month. It happens against the backdrop of continuing rally on currency market when ruble since the start of the year went down in value on 9 % to USD and on 8 % to EUR and cut psychologically important historical peak rates, that didn’t change since the financial crisis of 2008.

In order to smooth the process of national currency rate devaluation at the moment of economy slackening, the Central Bank begins using money support, i.e. it sells the currency and increases the demand for the ruble in doing so. When the investment amount reaches USD 350 million, the limit automatically increases on 5 kopecks. The reverse process is similar.

Since the beginning of 2014 during 2 incomplete months the Central Bank has already increased the high limit of the band 29 times, whereas from August to December 2013 there were “only” 25 corresponding increases.

Obviously, the situation in Russian economy is far from stability and the fact that ruble is rapidly losing weight means that there are important macroeconomic reasons for it. It is indirectly confirmed by decrease of the industrial production on 0,2% in January 2014 in comparison with the similar period of the previous year, along with perpetual outflow of investments. Moreover, the financial power is likely to admit in the near future that the beginning of the year was disappointing for the economy and that in whole the lowering of the GDP is expected.

The pattern of growth, based on export of resources, has fully run its course despite high oil prices. The President of the Russian Federation V.V. Putin appealed the expert community, RAS in particular, to formulate a proposal on mobilization of new sources of economic development. It remains to wait, that the expert community and government agencies will find and put into practice consensus concerning new economic policy.