The Rouble Is On A Tear After The Russian Central Bank Announces Major Policy Shift

The rouble is on a tear on Monday after the Russian central bank announced that it was abandoning its attempts to prop up the currency and allowing it to free float. The announcement came at the same time as the price of oil ticked up — giving the currency a convenient bounce.

In early trading Russia’s currency rose by over 3% touching 45 roubles to the dollar, unwinding a large chunk of last week’s heavy declines.

RUBUSDBloombergRouble vs the dollar.

The rally comes as the central bank released a surprise announcement that it would no longer target a set limit for the rouble’s value. However, it restated its commitment to intervening in currency markets if movements in the roubles value threatened financial stability.

Effective from 10 November 2014, the Bank of Russia abolished the exchange rate policy mechanism through cancelling the permissible range of the dual-currency basket rouble values (operational band) and regular interventions on and outside the borders of this band. However, the new approach of the Bank of Russia to operations in the domestic market does not provide for complete abandonment of foreign exchange interventions, which can be implemented in case of financial stability threats.

The timing of the announcement could not have been better for the central bank with the major factor driving the collapse in value of the rouble over recent months — falling crude oil prices — reversing its trend. Both WTI and Brent crude were up by over 1% on Monday on fears of rising political tension in Ukraine and instability in Libya posing a risk to supply, according to the Wall Street Journal.

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