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Experts have told how the CBA affects the carry trade and the exchange rate

Active reduction of the key rate of the Central Bank of the Russian Federation in recent time reduces the flow of funds in ruble-denominated financial instruments in the framework of the carry trade, according to respondents RIA Novosti experts. Among other things, this puts pressure on the ruble, the experts believe.

Carry trade is the investment strategy of gaining profit on the Forex market due to different interest rate. In particular, it could be sale of currency (dollars, Euro, on which the fed and the ECB keeps rates near zero) and the purchase of these funds for ruble-denominated financial instruments that are profitable. Such actions of investors lead to higher supply of foreign currency on the Russian market and, accordingly, to the strengthening of the ruble.