Gazeta: "The Central Bank and the Government Diverge on the Rouble Exchange Rate"
Russia's currency will be floated, but there will be no sharp devaluations.
First Deputy Chairman of the Bank of Russia (Central Bank) Alexei Ulyukayev, yesterday confirmed that the Central Bank would float the rouble by 2012. The Bank's presence in the currency market is already minimal, he said. However, half an hour later Russian Prime Minister Vladimir Putin declared that the authorities would not allow a free fall of the rouble. This is the second time in a month that the positions of the Prime Minister and the Central Bank official in charge of exchange rate policy have diverged.
A transition to inflation targeting and a floating rouble will be completed by 2012, First Deputy Chairman of the Central Bank, Alexei Ulyukayev, told an investment forum in Moscow. A document to that effect was approved by the Central Bank's Board of Directors and submitted to the State Duma on September 30. At present the rouble is quasi-floating, Mr Ulyukayev said: the Central Bank intervenes in the domestic currency market only to dampen sharp exchange rate fluctuations which are not good for the Russian economy at present.
However, Prime Minister Vladimir Putin, addressing the same Forum after Ulyukayev, promised that the authorities would not allow a sharp drop of the rouble. "We have enough resources and opportunities to protect the national currency and financial system against any new currency upheaval," Mr Putin said. This is not the first time the Government and the Central Bank do not see eye-to-eye on the issue of the national currency rate. In mid-September Alexei Ulyukayev said the Central Bank had effectively set the rouble rate free and might stop using the 26-41 rouble exchange rate band in the future. And he added that the Central Bank would not "defend the absolute limit" even if oil prices fall. On the same day Vladimir Putin said the government would not allow an excessive strengthening of the rouble.
However, Finance Minister Alexei Kudrin has since said that there is no contradiction between the two statements: "the Central Bank as an independent institution will proceed as it will in loosening control of the rate of the rouble. The government should, within its scope of authority, diminish volatility (of the rouble exchange rate) by saving more of the oil and gas revenues," the Minister told Reuters.
Experts believe that the latest statements by the First Deputy Chairman of the Central Bank and the Prime Minister are not incompatible. The floating of the rouble does not necessarily imply devaluation," says Vladimir Osakovsky, chief of the Uni-Credit Bank strategic planning and development department. In the future the rouble may be volatile and may even be devalued, but not by tens of percentage points as at the end of last year. It was this kind of massive devaluation that Mr Putin was referring to. The indications are that the Government's main objective now is to restrain currency rate volatility, the expert notes.
His view is shared by Vladimir Kharchenko, the senior expert at the market research department with IFD Kapital. He believes that the Central Bank is unlikely to give up its policy of shoring up the rouble unless it contradicts the targets of monetary policy with respect to the exchange rate. If pressure on the two-currency basket increases (for example, when large amounts of currency are sold) the Central Bank will most probably cut the buying price to limit the rouble's mass being released into the market and consequently the growth of inflation.
Natalya Gaidash
