The return of the Central Bank

Today’s Vedomosti.ru report that the Russian Central Bank sold 5.2 billion rubles (USD 169.4 million) on January 9, the first day of trading in 2013. The intervention was caused by the sliding of the USD/RUB rate to below 30.5. This is the first intervention by the Central Bank since November 19, 2012 and the first time it intervened to lower the ruble exchange rate since May 2012. After the initial strengthening of the ruble, which is attributable to traditionally lower imports in January, analysts believe that the FX market will remain quiet during the first quarter of 2013.

The Central Bank did not intervene in the market recently as the exchange rate of the EUR-USD currency basket remained within the targeted range, which the analysts believe to be between 34.65-35.65 rubles (currently trading at 34.54 rubles). The Central Bank defines a wider allowed range for the EUR-USD currency basket, the so-called operational interval, which is between 31.65-38.65 rubles. Central Bank’s recent absence from the currency market is believed to be a step towards the full liberalization of the exchange rate and shifting the focus towards inflation targeting.

The ruble exchange rate was spurred by the liberalization of the state bonds market introduced in November, which led to an increased demand for ruble-denominated government securities. 10-year Russian government bonds yield 6.75 percent, which is a very attractive yield considering the stable exchange rate and the extraordinarily low level of central government debt. Starting from January 8, the Moscow Exchange pushed the closing of its currency exchange from 19:00 to 23:50 Moscow Time. However, the Central Bank’s presence in the currency market will remain the same – from 10:00 to 19:00 Moscow Time.

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