Intervention of the ruble - what is it? Currency Interventions of the Bank of Russia

The most effective and effective way to manage the exchange rate in Russia is the ruble. What is this, try to find out gradually. The procedure, in fact, is a large-scale purchase or sale of the domestic currency of the CBR, which allows you to take the course of the latter to a certain level. The basis for the strategy of impact on the value of the ruble is the rule: the increase or reduction in demand for the national currency within the international market leads to its reduction in price or appreciation, that is, to growth or a drop in quotations.

Why should the Central Bank intervene?

Russia belongs to the category of states that thrive on the basis of raw materials. For export, a huge amount of oil products are exported, while a huge number of consumer-oriented goods are imported into the country. For many, the high ruble exchange rate against the US dollar may seem a big advantage. People are guided by the fact that it is possible to travel around the world at minimal cost, as for a small number of rubles you can buy a lot of dollars. There is also the second side of the coin. Companies engaged in the export of raw materials, negatively relate to a high rate. The problem is that the sale of oil is for inexpensive dollars, but the purchase of raw materials and labor for employees of companies is carried out in expensive rubles. Dependence of the country's budget on the oil and gas sector leads to a budget deficit with a very high exchange rate of the national currency. To stabilize the ruble exchange rate and eliminate the likelihood of a budget deficit, the government implements such a procedure as intervention in the foreign exchange market.

The actual calculations: why reduce the ruble rate

Consider, for example, the negative impact of an expensive ruble on the activities of oil and gas companies. Let's discuss the situation when the cost of oil will be $ 1000. The total costs of the enterprise (again, for example) are about 20 thousand rubles. When the dollar will cost 25 rubles, the company's net profit per tonne of oil will be about 5 thousand rubles. If the dollar will cost 30 rubles, then the profit will be equal to 10 thousand rubles. It is calculated as follows:

Ruble exchange rate x Cost per tonne of oil - Cost = Net profit

Such calculations in a general format are used in the construction of the state's economic plan. Intervention of the Central Bank in the foreign exchange market is conducted in order to prevent a strong appreciation of the domestic currency, which may lead to inappropriate development of oil.

The actual calculations: why maintain the ruble rate

Unacceptable situation is formed in the market and when the ruble is excessively weakened. Let us analyze this situation on a concrete example. Assume that the goods that are imported into the country are equal to one dollar. In a situation where the dollar exchange rate will be 20 rubles, the goods in the store will also cost 20 rubles plus minor costs. When the dollar rate rises to 30 rubles, the cost of the imported goods will also increase. As a result, such a concept as inflation will be formed. Inflation jumps do not benefit the country, which depends on imported goods. Interventions of the Central Bank in the currency market in this situation will be aimed at buying a national currency for a foreign one in order to increase demand for it.

Features of interventions

Mass purchase or sale of currency and is the intervention of the ruble. What is this from the technical procedure, we will try to consider gradually. The procedure is organized and conducted by the CBR. When a real intervention is planned, the Central Bank informs about the planned manipulation of the currency in advance. This approach is called verbal intervention. The message of the Central Bank causes a certain reaction of the participants of the foreign exchange market. It may happen that a message on buying or selling a currency will significantly reduce the CB's spending on manipulation. Data on intervention can automatically stimulate the growth or decline in demand for national currency. Some states practice verbal intervention to influence the exchange rate of the national currency. The situation in the foreign exchange market can drastically change if the influential head of the Central Bank hints about the upcoming events.

Types of intervention

There are several formats in which the intervention of the ruble can be conducted. What is this and what are the variations of the procedure, let's try to find out below.

• Verbal intervention (fictitious). The currency market can be influenced not only by currency interventions of the Central Bank of the Russian Federation, but also by rumors that they are planned for the near future.
• Real intervention. The operation is conducted in an open format. After its termination in the media, information is published on how much money it took to conduct it. Quite often intervention in the foreign exchange market can be conducted with the participation of not one but several states. This situation is typical for cases when several countries are interested in changing the exchange rate.

It is worth noting that verbal intervention is much more widespread than the actual version of the process. This is due primarily to the fact that unexpected information always causes a strong reaction of market participants.

Interventions depending on the direction

Intervention can be classified according to the direction:

• Behind the market. This format of intervention strengthens the movement in the market, which has already been formed. Government manipulation only strengthens the trend.
• Against the market. This procedure is aimed at restoring the exchange rate of the national currency to the previous level. That is, the Central Bank will act against the existing and established within the market trend. Unfortunately, attempts of central banks to deploy the direction of price movement do not always end with success.

What do you need to successfully carry out the intervention?

Regulation of the foreign exchange market ends with success only if several conditions are met. You can talk about the presence of the following factors:

• High level of confidence of foreign exchange market participants in the long-term policy of the Central Bank.
• Significant changes in economic indicators of the fundamental type.
• Presence of a sufficient number of financial reserves from the Central Bank.

Studying such a phenomenon as the intervention of the ruble (which is already discussed above), it is worth mentioning its application not only with the aim of adjusting the exchange rate. The procedure is used to control the volatility of the market, to maintain the level of liquidity of the national unit, to reduce the rate of change in its price, to accumulate the reserve of the CBR.

What is happening to the Central Bank today and why did it stop controlling the ruble?

As a result of the catastrophic decline in value and severe sanctions from the EU, the currency interventions of the Bank of Russia ceased to produce the expected effect. It turns out that the global consumption of gold reserves was carried out in vain. To save state savings, the government decided to let the national currency float freely. This suggests that the purchase and sale price of the Russian ruble will depend solely on actual demand and supply in the market.

When did interventions cease to be effective?

Currency interventions of the CBRF have always had a certain impact on the situation on the market. On December 5, 2015, the circumstances changed dramatically. Since on this day for the first time in history the dollar / ruble quotes reached their peak at a rate of 63 rubles. A similar situation was observed on the euro / ruble quotation chart, which turned out to be at 78 rubles. At the same time, European fuel fell in price to $ 60. Russian companies began to show an active interest in currency, since most of them were credited in US dollars. To support the domestic exchange rate, the Central Bank of the RS sold about 2-3 billion dollars. The sharp depreciation of the ruble, since December 2014, did not respond to the intervention of the Central Bank, as it was caused not only by internal causes, but also by a powerful impact from external economic factors. Today, the government intervenes in the formation of the price of the currency only if it is absolutely necessary and the critical state of the economy requires it at a certain point in time.