The Pak Banker - - FRONT PAGE -

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.

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