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Russian Central Bank Cuts Key Interest Rate

The rate cut, however, only sped up the decline of the national currency. It said then in a statement that the scale of future rate cuts would depend on the rate of inflation. In a statement, the bank said it took the decision “taking into account that the balance of risks shifts towards the considerable economy cooling despite a slight increase in inflation risks”. Some analysts interpreted that as a sign it may now be more cautious about rate cuts.

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The Russian ruble on Monday plummeted to a four-month low after stabilising to a degree in spring, hurt by falling oil prices amid a global oversupply of crude.

Governor Elvira Nabiullina is keeping the focus on Russia’s first recession in six years as inflation slows and a potential U.S. rate increase risks sapping cash from developing nations. But the rouble, already down over 1 percent before the central bank decision, still fell after the cut. At 1112 GMT the rouble was down around 2.1 per cent at 61.00 against the dollar. It also forecast that the Russian economy could weaken further. “The prudent course of action would have been to leave rates on hold”. “At the same time though, it still continues to believe that inflation is on course to fall sharply over the coming quarters”.

The central bank bought around $10 billion to replenish worldwide reserves since starting the program in mid-May, adding up to $200 million per day.

The bank reiterated that the scale of its foreign currency purchases would be adjusted to minimize the effect on the exchange market.

“If oil prices deteriorate further, or there is additional flight to the dollar, we believe that the CBR might keep the policy rate unchanged in 2015”.

Inflation in Russian Federation now stands at 15.3 percent in June although the rate is heading in the right direction.

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The central bank said it estimates the economy contracted at a sharper annual pace in the second quarter compared with the previous three months.

Troubled rouble hit by oil price