Russia's central bank announced a half-percent cut in main interest rates on Wednesday, its second reduction in less than a month aimed at stimulating the crisis-hit economy as the ruble stabilises. The bank's board of directors decided to cut the key refinancing rate, effective on Thursday, to 12 percent from 12.5 percent, the central bank said in a statement published on its website.
Russia at the end of April cut the refinancing rate to 12.5 percent from 13 percent in its first interest rate cut since 2007. In November, it had hiked interest rates one percent to protect the ruble. Earlier this year, the ruble came under sustained pressure on the markets, forcing the central bank to shell out tens of billions of dollars in foreign currency interventions to prop up the currency.
But the pressure has receded since the government implemented a controlled devaluation of the currency to help the economy cope with the global crisis. The ruble is now being traded at a four-month high point against the dollar after losing value to a low of almost 35 rubles against the dollar in January. On Wednesday, the ruble was being traded at 32.0 rubles to the dollar.
"There is no pressure on the ruble, inflation data is good and the central bank is controlling inflation expectations," a central bank source told the RIA Novosti news agency explaining the cut. Month-on-month inflation had slowed to 0.7 percent in April, the statistics office said, compared with a figure of 1.3 percent in March.
Russia has been one of the economies worst hit by the global financial crisis, as the slowdown caused a plunge in the prices for its oil and gas exports and hit its Soviet-era heavy industry hard. The Russian economic development ministry has said the economy could shrink by six percent this year after contracting by an alarming 9.5 percent in the first quarter compared with the same period last year.
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