The Bank of Russia announced its commitment to the free-float policy on the national currency. Recently, some Western news agencies with reference to sources in the Russian government reported that Russia’s central bank together with the cabinet of ministers found a solution to the budget deficit amid falling oil prices. In other words, the regulator allegedly plans “informal targeting of the ruble.” In response, officials of the central bank had to refute this information. The Bank of Russia confirmed its free-float strategy and highlighted that any interference in the ruble’s exchange rates would be disastrous for the domestic economy. The ruble’s value should be determined solely by supply and demand.
Importantly, the central bank is capable of affecting the ruble’s dynamic by means of active forex interventions. In autumn 2014, the Bank of Russia decided to let the ruble float free in financial markets. The regulator ventured into this move in an effort to stem the worst financial crisis over 17 years in Russia. By that time, the ruble had plummeted by almost 50% against the US dollar. Opponents of this approach insisted that such a decision was against the law as the idea to abandon controls on the ruble’s exchange rate contradicted article 75 of the Constitution. According to the basic law of the Russian Federation, the central bank is obliged to ensure stability of the national currency. However, the court ruled that the decision in favor of the free-float policy is lawful.
