In response to rising inflation, Russia may allow the Ruble to appreciate. Russia’s Central Bank has set a target inflation rate of 8.5%, which, if achieved, would actually represent a 3% decrease from 2004. Soaring commodity prices, have trickled down through Russia’s economy, triggering a broad increase in prices. Russia currently maintains a "managed float" exchange rate regime, in which the value of the Ruble is technically determined by market forces. However, the Central Bank intervenes on a daily basis, to essentially fix the value of the Ruble against a basket of currencies. Rather than raise interest rates, Russia’s Central Bank will likely allow the exchange rate to appreciate against the USD and the Euro, so that Russia will receive more Rubles for its exports, namely commodities. The Financial Times reports:

An economist at Moscow Narodny Bank, added: “Inflation pressures are very prominent and, given the limited sterilization instruments, the burden is going to be placed on the exchange rate.”

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