Bank of Russia vows to carry out ‘unlimited' interventions to defend ruble

The Bank of Russia has vowed it will carry out "unlimited" foreign exchange interventions to defend the ruble weeks after it let the currency float.

The central bank also announced yesterday that it had cut interest rates on forex repos in order to "balance supply and demand" in the local foreign exchange market.

The ruble has fallen off a cliff in the recent months, losing over 60% against the dollar since June 27 amid Western sanctions and falling oil prices. On Monday, it plummeted by 8% against the dollar, the biggest daily drop since 1998.

"The current ruble exchange rate has deviated considerably from fundamentally reasonable values," the Bank of Russia said in a statement yesterday.

The bank which, according to data on its website, spent $2.6 billion of its reserves defending the ruble between Monday and Wednesday, said it was "determined to carry out further unlimited forex interventions without prior notice" if required.

"Measures taken by the Bank of Russia will facilitate the return of the exchange rate to... fundamentally reasonable values," the central bank said.

The Bank of Russia formally abandoned its managed exchange rate regime on November 10, announcing the level of the ruble would be determined by market factors from that point onwards.

It did, however, retain the right to resume forex interventions on an ad-hoc basis to safeguard financial stability.

"Currently observed dynamics of the rouble exchange rate, including its redundant volatility, create prerequisites for financial stability risks," it said yesterday.

The Bank of Russia also slashed the interest it charges on forex repos to  "Libor rates in corresponding currencies" - plus 50 basis points.

The bank announced in October it would offer new foreign currency repos worth $50 billion to banks until the end of 2016 in an effort to boost market liquidity and "smooth" exchange rate volatility.

Aimed at "further empowering credit institutions to manage their own short-term foreign exchange liquidity" – Russian banks are struggling to meet their foreign currency obligations amid the currency squeeze – the central bank until now offered the repos at Libor plus 2% or 2.25%, depending on maturity.