Rus­sia cuts key rate for first time in 10 months

Pakistan Observer - - ECONOMY WATCH -

MOSCOW—Rus­sia’s cen­tral bank cut its key in­ter­est rate by half-a-per­cent­age point the first re­duc­tion in 10 months af­ter the ruble re­cov­ered thanks to a bounce in oil and fad­ing in­fla­tion fears. “The Bank of Rus­sia board of di­rec­tors de­cided to re­duce the key rate from 11.00 to 10.50 per cent,” the bank said in a state­ment. “The board of di­rec­tors notes the pos­i­tive trends of more sta­ble in­fla­tion, de­creased in­fla­tion ex­pec­ta­tions and in­fla­tion risks against the back­drop of im­mi­nent growth re­cov­ery in the econ­omy.”

Rus­sia is des­per­ate to breathe life into its en­ergy-driven econ­omy, which is mired in a re­ces­sion caused mainly by the drop in oil prices and Western sanc­tions im­posed over Moscow’s med­dling in Ukraine. The rou­ble has risen some 25 per cent since Jan­uary as the price of oil has nearly dou­bled af­ter hit­ting its low­est point in over a decade. In­fla­tion has now also stead­ied at around 7.3 per cent, ac­cord­ing to the cen­tral bank, its low­est level since 2014.

The bank said that it was now mark­ing down its in­fla­tion forecast for the end of 2016 to be­tween five and six per cent and said in­fla­tion would hit its long-term tar­get of four per cent by the end of 2017. The rise in the na­tional cur­rency and sta­bil­i­sa­tion of in­fla­tion had ramped up pres­sure on the bank to cut its rate for the first time since late-July 2015. A slump in oil prices from their 2014 peaks and wor­ries over in­fla­tion spelt the end of a se­ries of rate re­duc­tions back then as Moscow cut back fol­low­ing a monster rate rise in De­cem­ber 2014 aimed at stem­ming a dra­matic ruble drop.

In its state­ment an­nounc­ing Fri­day’s re­duc­tion the bank pledged that it would also look to fur­ther cut back the key lend­ing rate in fu­ture. “The Bank of Rus­sia will con­sider the pos­si­bil­ity of a fur­ther rate cut based on es­ti­mates for in­fla­tion risks and align­ment of in­fla­tion de­cline with the forecast tra­jec­tory,” the state­ment said. The ruble weak­ened slightly against the dol­lar to around 64.5 and to around 72.9 against the euro as of 1130GMT.

The In­ter­na­tional Mon­e­tary Fund pre­dicted that Rus­sia’s econ­omy will con­tract by some 1.5 per cent this year be­fore growing by one per cent in 2017. Rus­sia is gear­ing up for par­lia­men­tary elec­tions in Septem­ber that will test how re­silient sup­port for the author­i­ties is in the face of growing eco­nomic woes.—AFP

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