21 Sep 2010 12:55

Central Bank to reduce exchange rate role in 2011-2013

MOSCOW. Sept 21 (Interfax) - The Central Bank will steadily reduce its role in the exchange rate process and in preparing the economy for a floating exchange rate, according to the draft fiscal policy for 2011 and 2012-2013 that was approved by the Central Bank's board of directors on September 10, 2010, the text of which has been obtained by Interfax.

The Central Bank will continue using the floating corridor for the bicurrency basket's exchange rate, whose boundaries are automatically adjusted depending on the size of any interventions. The bank plans to retain the ability to conduct currency purchases and sales at the borders of the corridor and inside it.

That will prevent the exchange rate from fluctuating excessively without hindering the effect of market forces.

The balance of trade and cross-border capital flows will be the main factors affecting the ruble exchange rate in 2011-2013, the document says.

Maintenance of a trade surplus will tend to strengthen the ruble in proportion to the size of the surplus.

The effect of capital flows introduces substantial uncertainty into the exchange rate in the medium term. That increases the importance of risk management for business and other economic organizations and the role of the Central Bank's interest rate policy in ensuring financial stability and meeting inflation targets.

The bank will also phase out anti-crisis tools for regulating liquidity at banks and return to traditional mechanisms. However, the Central Bank reserves the right to issue unsecured loans and to use other discontinued refinancing instruments as needed.

Given a stable situation on the currency exchange, the Central Bank will concentrate on regulating short-term liquidity. In order to improve access to refinancing operations, the bank plans to expand the list of assets that may be used as security in those operations, including gold.