Ruble Advances as Cash Crunch From Higher Rates Supports Demand

http://www.bloomberg.com/news/2014-12-19/ruble-advances-as-cash-crunch-from-higher-rates-supports-demand.html


The cash crunch that Russian central bank Governor Elvira Nabiullina engineered to bolster the ruble is starting to work.


The currency has rallied about 35 percent versus the dollar since plunging to a record low on Dec. 16 in the worst day of Russia’s nine-month financial crisis. Nabiullina jacked up borrowing costs by the most in 16 years that day to 17 percent, sacrificing economic growth to prevent a freefall in the ruble.


The result: Russian banks already blocked from borrowing abroad by sanctions over Ukraine are getting squeezed at home. The rate they charge each other for overnight cash doubled this month to 27 percent yesterday, the most in at least eight years. This stabilization, at a ruble rate with half the buying power it had two years ago, will aggravate an economic contraction and may not last if the price of oil drops further.