Russia's central bank makes surprise interest rate cut to 15% from 17%

Russia's central bank makes surprise interest rate cut to 15% from 17%

MOSCOW - Agence France-Presse
Russias central bank makes surprise interest rate cut to 15% from 17%

A board showing currency exchange rates is on display in central Moscow January 30, 2015. REUTERS Photo

Russia's central bank cut Jan. 30 its main interest rate to 15 percent from 17 percent in a move that caught markets by surprise, sending the ruble tumbling.
"The Bank of Russia Board of Directors decided to reduce the key rate from 17.00 to 15.00 percent per annum," the central bank said in a statement.
It added the cut was "aimed at averting the sizeable decline in economic activity against the background of negative external factors."        

The bank was apparently referring to Western sanctions over the Ukraine conflict as well as falling oil prices.
It said the interest rate could be cut "due to the shift in the balance of risks of accelerated consumer price growth and cooling economy."       

The central bank predicted that the economy would contract at an annual rate of 3.2 percent in the first half of 2015.
Economists had largely predicted that the central bank would decide to keep the rate the same in order to keep a lid on inflation, although the high interest rate slowed investment in the economy and bankers and industrial leaders were calling for a cut.
The head of the central bank, Elvira Nabiullina, said last week that the central bank's priority was curbing inflation because that was the worst problem for the public and business.        

She said the bank would "be ready to lower the interest rate if there is a stable trend of falling inflation and expectations of inflation."        

The central bank on December 15 jacked up the key rate to 17 percent from 10.5 percent in a bid to stabilise the ruble. The 17 percent rate as widely seen as untenably high.        

The central bank said Friday this hike had "resulted in stabilisation of inflation and depreciation expectations."         The ruble fell on the news, hitting 81 against the euro and 71 against the dollar.        

It stood at 80.15 against the euro and 70.62 against the dollar at around 1130 GMT.        

These levels had not been reached since December 17, a day after "Black Tuesday" when the ruble suffered its worst plunge since President Vladimir Putin came to power 15 years ago.
That prompted public panic over the ruble, with people withdrawing savings from banks and changing them into dollars or euros, as well as rushing to buy large items such as cars and white goods before prices went up.
The central bank said that a resulting surge in inflation "is driven by the accelerated price adjustment to the ruble depreciation" and that this was a temporary phenomenon.
In the longer term, "the inflation pressure will be contained by decrease of economic activity," the bank predicted.        

It forecast consumer price growth would be lower than 10 percent in the next 12 months.
Inflation has risen sharply because of the weakening ruble. Economy minister Alexei Ulyukayev said last week that inflation in January could hit 13 percent after reaching 11.4 percent for 2014.
Inflation could reach 17 percent by spring, the deputy economy minister Alexei Vedev said this month.