“The ruble is currently undervalued by all fundamental indicators and certain time is needed for it to come close to its fundamental value,” Nabiullina said.
With the current oil prices, the ruble is 10-20% undervalued, the Central Bank chief said.
Nabiullina said Russia’s Central Bank is ready as a regulator to explain its policy to market participants who fail to understand it fully.
“It is necessary to adapt to new conditions and the Central Bank’s new policy. We understand that when questions arise for them (market participants) and perhaps there is some misunderstanding of our policy, we are open and will explain it and will talk more about our goals and measures to ensure that there is such understanding,” she said. “The ruble is currently fundamentally undervalued and time will be needed to remedy this,” the Central Bank chief said.
“No doubt, the situation is quite complex and it requires absolutely coordinated actions by the government and the Central Bank. We’re ready for such coordination and we’re working quite closely with the Finance Ministry and the Economic Development Ministry,” she said.
The Russian domestic market showed no reaction to Nabiullina’s statements. The US dollar is currently trading at 65.94 rubles to the dollar on the Moscow Exchange, up 1.52 rubles from Monday’s close while the euro is trading at 82.57, an increase by 3.7 rubles.
Russia’s Central Bank spent as much as $2.38 billion on the domestic foreign exchange market on Monday to prop up the ruble that had shed 10% against the dollar and the euro.
According to the Central Bank’s data, the regulator has spent about $75 billion in the first eleven months of this year to defend the ruble or about 5% of GDP.
Therefore, the volume of the Central Bank’s foreign currency funds spent on supporting the ruble exchange rate can be compared to twice the amount of Russia’s debt on external bonds ($39.1 billion) and 1.5 times the amount of the country’s sovereign foreign debt ($53.7 billion).
According to data of Russia’s Finance Ministry, the country’s international reserves equaled $416.2 billion as of early December 2014 compared with $511.6 billion as of the same period a year earlier.
Russia also has two oil wealth funds — the National Welfare Fund ($79.9 billion or 5.5% of GDP) and the Reserve Fund (6.1% of GDP).