Emerging markets will face currency appreciation pressures and greater volatility of capital flows as central banks in the U.S. and European Union push interest rate increases further into 2011, said Alexei Ulyukayev, first deputy chairman of Russia’s central bank.
“Continued easing of monetary policies carries problems for emerging markets, including Russia,” Ulyukayev said today in an interview in Moscow. Developing nations may also be forced to raise interest rates to control inflation and maintain the differential between external and domestic rates, he said.
Russia’s central bank may reach a “modified free float” of the ruble by 2012, Ulyukayev said.
While the bank will continue to intervene on currency markets to “smooth out the volatility” of the ruble, “we will not set a target for the ruble’s nominal or real exchange rate,” he said.
The narrow floating corridor for the ruble is currently in 33.40 to 36.40 against the central bank’s basket of currencies and hasn’t changed since April, Ulyukayev said. The bank pledged on Jan. 22, 2009, to defend the ruble within the wider 26 to 41 fixed band.
“We aren’t pursuing a strategy to reduce our investments in U.S. securities,” Ulyukayev said. Russia “always” keeps more than one-third of its international reserves, the world’s third-largest stockpile, in U.S. Treasuries even though the allocation may fluctuate, he said.
Russia’s reserves are currently made up of 47 percent dollars 41 percent euros, 10 percent pounds, 2 percent yen and a small amount in Swiss francs. The foreign-currency structure of the reserves hasn’t changed, Ulyukayev said.
Russia may consider investing in the currencies of other BRIC countries -- Brazil, India and China -- if they “liberalize” their currency regimes, he said.