Russia's central bank reduced its key interest rate for the fifth time this year as policy makers sounded the alarm about the nation's deepening economic slump. The one-week auction rate was lowered by 50 basis points to 11 percent, the central bank said Friday in a statement on its website. Twenty-seven of 35 economists in a Bloomberg survey predicted the move, with five forecasting no change. The ruble extended losses after the announcement and weakened past 61 to the dollar for the first time since March.
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. The smallest decrease in the seven-month easing cycle also shows the central bank is look- ing past risks from the ruble, which resumed losses a day after the regulator suspended foreign- currency purchases this week.
The decision is "taking into account that the balance of risks is shifting toward considerable economic cooling despite a slight increase in inflation risks," the central bank said in the statement. "Consumer-price growth will continue to slow amid slack domestic demand."
The ruble's 19 percent loss against the dollar has been the world's worst performance since May 13, when the regulator started buying foreign currency to replenish reserves. The Russian currency traded 2.3 percent weaker at 61.1150 to the dollar at 2:22 p.m. in Moscow.
That's threatening to fuel inflation by pushing the cost of imported goods higher. Price growth remains almost four times the central bank's mid-term target after slowing last month to 15.3 percent from a year ago. It reached 15.8 percent on July 27, the Bank of Russia estimates.
"There is a clear shift in tone: the Russian central bank is no longer committing to cut rates further," Liza Ermolenko, an analyst at London-based Capital Economics Ltd. said by e-mail. "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 said it estimates the economy contracted at a sharper annual pace in the second quarter compared with the previous three months. The scenario of oil prices remaining below $60 a barrel "for a long time is more probable than it was in June," it said. Russia will endure a two-year economic contraction if crude prices remain at $60 through 2016, the central bank said in June.