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By Bloomberg

Russia’s free-floating exchange rate is looking less free by the day.

It’s been a wild ride. The central bank originally gave up its band for the currency back in November, when the ruble was falling to record lows. But a rebound this year of as much as 41 percent brought the currency to 49 per dollar, threatening Russia’s competitiveness. By mid-May, the central bank said it would start buying foreign exchange to replenish reserves.

Today, it suspended that program after the ruble, hit by falling oil prices, weakened beyond 60 per dollar for the first time since March. That drop threatened to stoke inflation, which the central bank is struggling to bring down.

“Whatever their true intentions are, it’s the perception that’s important, and the market perception is that they have a corridor to contain the ruble,” Dmitri Petrov, a London-based analyst at Nomura Holdings Inc., said by e-mail. “It’s quite a bounded free float; dirty float is probably the closest description.”

Russia’s surprise announcement helped pull the ruble back from the lowest levels in four months against the dollar. The rebound could embolden central bankers meeting Friday to extend their 5 1/2 percentage points of interest-rate cuts this year aimed at lifting the economy from recession. Among the 35 economists surveyed by Bloomberg, the median expectation is for a half-percentage point reduction. Three-month forward-rate agreements more than doubled on Wednesday to predict a 28 basis- point decline.

After jumping as much as 2.2 percent yesterday, the ruble was 0.5 percent lower at 58.9930 against the dollar as of 11:37 a.m. in Moscow. Russia’s borrowing costs fell for the first time in eight days yesterday; the yield on five-year government ruble bonds dropped four basis points today to 10.74 percent.

Further Depreciation

“The central bank’s move can help in the short term, but in the longer term the ruble has to depreciate further, reflecting the falling oil price,” said Alexey Tretyakov, a money manager at Aricapital Asset Management in Moscow. With Brent crude trading around $53, the ruble should be weakening to around 70 a dollar, he said by e-mail Wednesday.

The Bank of Russia said yesterday it curtailed its foreign- currency purchases from $200 million a day last week to $160 million on Monday and none from Tuesday because of “growth in volatility on the domestic currency market.” The central bank didn’t indicate how long the suspension of purchases would last.

The central bank in May denied that the purchases run counter to its free-float policy, saying its main target remains reducing inflation. Central banks of countries claiming a fully flexible exchange rate often conduct such operations, it said through its press service on May 14.