Taking stock of the recent drop in the ruble

Events in Ukraine have been one factor behind the fall in the Russian ruble, but domestic problems have played a role too. The central bank (CBR) has already voiced its concern that exchange rate weakness could fuel inflation, leading some to argue that it will step in to prevent the ruble falling beyond a certain threshold. But we think a sharp and sudden fall in the currency (as opposed to a move beyond a specific level) is more likely to elicit a policy response. If the CBR decides to act, we think it has three options.