The move looks logical and expected as it is in line with the CBR’s commitment to introduce inflation targeting by 2015.
The amount of daily target interventions was left unchanged at USD 60mn, so it will now probably take 2.5 days to shift the basket (vs. 2.85 days before) in the first intervention zone. While the immediate implications for RUB are limited (as seen in the lack of reaction on the FX market yesterday), this move once again confirms that the CBR is not comfortable with constant reserve/liquidity drain and is likely to continue amending the interventions mechanism.
Looking ahead, there might be different potential amendments to the current CBR intervention mechanism, for instance:
Additional cuts to the shift-triggering amount of accumulated interventions.
Widening of the operational band and and/or intervention-neutral zone.
Reduction/elimination of target interventions. By design their existence suggests the CBR is targeting a certain ‘equilibrium’ level of RUB. This contradicts the idea of a floating FX regime and the regulator is well-advised to eliminate target interventions altogether, we think.
Allowing for band shifts within the intervention-neutral zone. Band shifts might be triggered when RUBBASK trades above/below the centreof the intervention-neutral zone for a certain number of trading days.
While this list is far from complete and precise measures are hard to predict, one way or another the CBR has to reduce its presence on the FX market in order to cap the liquidity cost of RUB adjustment. Hence, we think that potential RUB strength/stability during seasonally favorable winter months might provide the CBR an opportunity that is hard to resist.