If a central bank wants to defend its currency, it normally uses foreign exchange interventions first, then interest rates. Russia cannot use foreign exchange interventions

A number of countries have seen a sharp depreciation of their exchange rates: in the recent period (since 2018) for example, the Brazilian real, the Indian rupee, the Argentine peso, the Turkish lira, and today the Russian rouble. If the central bank wants to curb the exchange rate depreciation and the accompanying inflation, normally: It first uses foreign exchange reserve interventions , which initially avoids penalising the economy through higher interest rates; Then, if this is not enough, if the fall in foreign exchange reserves is too great, it will raise interest rates. We look at whether this sequence was seen in Brazil, India, Argentina and Turkey. Today in Russia, given the freezing of the central bank’s Western currenc y assets , raising interest rates is inevitably the only available weapon.