This paper presents empirical analysis of Russian Central Bank's policy on currency market during 1999–2003. Real exchange rate is decomposed into permanent (non-stationary) and transitory (stationary) components using Beveridge–Nelson decomposition of time series the first one is associated with the market fundamental changes the second one captures impacts of the government policy on the real exchange rate. With the help of econometric analysis the study shows that Central Bank's policy during the period was inflationary. Influence on some other macroeconomic variables is also analyzed.