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CBR intervention mechanism

Yesterday, the Bank of Russia announced changes to its FX intervention mechanism. The width of the intervention-neutral range was increased starting this week to RUB 3.1 and one of the one rouble-wide intervention sub-bands was dropped as a result. At the same time, the amount of target interventions was kept unchanged at USD 120mn per day.

The move follows in the footsteps of the CBR's September decision to lower the amount of accumulated interventions that trigger operational band shifts and overall fits well into the regulators' commitment to move to a floating RUB and inflation targeting.

We believe the decision was designed to strike a delicate balance between short-term neutrality and medium-term determination to resolve long-standing conflicts in policy objectives. The knee-jerk reaction in the exchange market notwithstanding, we do not think the decision will affect RUB in the short term. In the longer run, the announced changes to the intervention mechanism are clearly a positive step, as the CBR would sterilise less liquidity in FX interventions. Should pressure on RUB persist, however, the regulator might have to resort to additional measures in order to curb interventions-related liquidity drain.

Vladimir Kolychev, Daria Isakova
VTB Capital analyst

CBR, ruble, FX market

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