Whenever the ruble moves to the weak end of the trading band, the central bank begins selling dollars and euros to cushion the currency’s decline. It automatically moves the band by 5 kopecks, or hundredths of a ruble, once an intervention allotment of $350 million is exhausted.
To combat the falling ruble, the Russia is raising interest rates, but....
While higher interest rates would reduce pressure on the ruble by making assets denominated in the currency more appealing, that isn’t expected to be enough to offset the impact of strong domestic demand for hard currencies. Since the West imposed sanctions against Russia, domestic banks and companies have had increasingly limited access to external borrowing, yet they still need to repay more than $47 billion in foreign debt.
As a result, both lenders and other firms are buying dollars and euros on the Russian market.
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