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

The currency has rallied 34 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 more than doubled this month to 27 percent Thursday, the most in at least eight years.

“It’s clear that the ruble shortage is undoubtedly contributing to the strengthening, preventing it from falling,” Dmitry Dudkin, the head of fixed-income research at UralSib Financial Corp. in Moscow. “We see a liquidity crunch as a result of rising interest rates.”

The financial-market gyrations — the ruble ranged this week between 56.18 and 80.10 — underscore the financial crisis that has evoked memories of Russia’s 1998 default and a warning from President Vladimir Putin that the slump could drag on for two years. The economy may shrink as much as 4.5 percent in 2015 if crude oil, the main export earner, stays at $60 per barrel, the central bank said on Dec. 15.

The ruble climbed 3.7 percent to 59.3000 a dollar by 5:14 p.m. in Moscow, paring its five-day decline to 1.9 percent.

In a sign of the magnitude of the cash shortage, one bank paid 38.3 percent today to take the entire 150 billion rubles ($2.5 billion) of 10-day deposits auctioned by the Treasury.

Repo Auction

The Bank of Russia also provided almost 488 billion rubles at a special repurchase auction of three-day cash after the rate banks charge each other for overnight funds soared to an eight- year high of 27.3 percent yesterday. The Mosprime overnight rate fell to 25 percent Friday.

Authorities stepped up efforts to stop the run on the ruble since the Dec. 16 rate increase from 10.5 percent unleashed panic that sent the currency tumbling 20 percent.

The Bank of Russia holds so-called fine-tuning repo auctions when it recognizes a need for additional liquidity in the banking system. The cost for overnight ruble deposits spiked to a six-year high of 22 percent Thursday before declining to 19.5 percent Friday.

Curtailing Supply

The overnight Mosprime rate remains 13 percentage points higher than it was before the rate increase. The yield on 10-year government bonds fell two basis points to 13.70 percent Friday, an increase of 70 basis points for the week.

The Bank of Russia has curtailed the supply of rubles available through repo and swap facilities since it moved to a freely floating exchange rate last month. The “conservative approach to provision of liquidity” is working, the Bank of Russia said in a statement to Bloomberg.

Sanctions over Putin’s annexation of Crimea and support for Ukrainian separatists have worsened the ruble’s retreat this year by creating a domestic dollar shortage.

That prompted companies to hoard foreign exchange, increasing depreciation pressure that nearly $90 billion of central bank currency interventions initially failed to arrest. Russia’s foreign-exchange reserves stood at a five-year low of $414 billion on Dec. 12.

Oil Effect

The currency’s weekly decline is set to be the smallest since it gained 3.2 percent in the period ended Nov. 23, just days before OPEC decided to keep output unchanged, sending oil tumbling below $60 a barrel for the first time in five years.

The exchange rate typically moves in the same direction as the price of oil since the government derives about 50 percent of the revenue from energy industries. Oil climbed 0.6 percent to $59.60 a barrel today in London, trimming this year’s decline to 46 percent. The ruble weakened 45 percent in the period, the worst performance globally after Ukraine’s hryvnia.

“Monetary conditions have tightened quite a bit, so the ruble is finally getting some support,” Vladimir Osakovskiy, the chief economist for Russia at Bank of America Corp. in Moscow, said in e-mailed comments. “If oil continues to slide, the ruble will follow despite the tightening.”