Russia’s ruble fell with oil prices, extending its biggest monthly rout since January as the central bank opted for the smallest interest-rate cut this year to avoid stoking inflation.
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The Bank of Russian Federation Board of Directors decided to reduce the key rate to 11.00% from 11.50%.
Authorities claim that the country has already weathered the worst of the economic crisis but the recent fall in the ruble following a drop in oil prices highlighted how fragile the situation remains.
MOSCOW-Russia’s central bank, whose credibility has been tested over the past year by runaway inflation and a volatile currency, is coming sharply into focus as it tries to tame inflation without sending the economy into a deeper recession.
This week the Bank of Russian Federation is in the market spotlight as it will have to balance inflation and growth risks at its rate-setting meeting on July 31. The scenario of oil prices remaining below $60 a barrel “for a long time is more probable than it was in June”, it said. It stood at 60.3 before the monetary decision. The ruble extended losses after the announcement and weakened past 61 to the dollar for the first time since March.
The central bank said it estimates the economy contracted at a sharper annual pace in the second quarter compared with the previous three months. The bank has effectively widened its options to respond either to a more severe economic slump or a further slide in the rouble.
Oleg Kouzmin, an economist at Renaissance Capital, welcomed the central bank’s move as “a very rational and timely decision”. The Bank of Russian Federation said it will further decide on its key rate depending on the balance of inflation risks and risks of economy cooling.
The ruble reached 60.30 per dollar in early afternoon trading in Moscow after having lost two percent of its value on Monday.
LONDON (CNNMoney) – The double-whammy that slammed Russian Federation last year is back: Oil prices are tumbling again and Western sanctions have just been extended.
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The regulator expects consumer price rises will continue to slow amid slack domestic demand.
