From: glevy@PRATT.EDU
Date: Mon Feb 07 2005 - 18:18:51 EST
http://www.mosnews.com/money/2005/02/04/currencybasket.shtml Russian Central Bank Switches to Euro-Dollar Basket in Targeting Ruble MosNews Russia's central bank said on Friday it had begun targeting the ruble's nominal exchange rate against the euro as well as the dollar, the Reuters news agency reports. The shift is meant to bring currency policy more in line with trade flows. The Bank of Russia said in a statement it had begun targeting a dual currency basket — made up of 90 U.S. cents and 10 euro cents — as of Feb. 1 and would gradually raise the weighting of euros. "Increases of the weighting of the euro in the twin currency basket, to a level appropriate for the task of exchange rate policy, will take place step-by-step as market players adapt," the statement said. The announcement completes an informal shift undertaken by the central bank last year, when it was forced by market appreciation pressures to abandon a de facto nominal peg of the ruble to the dollar and allow it to rise. The greenback's weakness on global currency markets, as well as Russia's oil-driven current account surplus, have led central bankers to say they were looking more at the euro as a guide to day-to-day exchange rate targeting. The central bank said it would continue its "managed" float of the ruble —- policy jargon for market intervention —- to smooth out excessive volatility and maintain the stability of the ruble. Dealers said the statement triggered dollar selling on the local currency market. One said the policy shift would help stop the ruble being buffeted by sharp euro-dollar moves, although other dealers remained at a loss over the practical impact. "We still don't really understand what it means," said one. The new twin basket applies to the nominal exchange rate of the ruble. Russia's central bank also targets the real effective exchange rate of the ruble, adjusted for inflation against a trade-weighted basket of currencies, as a benchmark to measure economic competitiveness. It was also not immediately clear whether the new twin nominal basket would lead Russia to raise the weighting of euros in its gold and foreign exchange reserves, which hit an all-time high of $128.3 billion as of Jan. 28. Russia's reserves are the sixth largest in the world —- and the largest outside Asia —- and any news on whether the share of euros may rise is enough to move the euro-dollar exchange rate, dealers say.
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