Russian central bank cuts key interest rate to 11.5%

Russia Central Bank cuts rates: Reaction
Russia Central Bank cuts rates: Reaction   

Russia's central bank cut its key interest rate once again on Monday, in a further bid to stimulate economic growth in the country.

Led by Governor Elvira Nabiullina, the Central Bank of Russia (CBR) cut interest rates by 100 basis points to 11.5 percent, in line with analyst expectations. It is the fourth consecutive month that it has opted to do so.

In a statement, the bank said it was, "taking account of lower inflation risks and persistent risks of considerable economy cooling."

It comes after the bank raised the rate to a lofty 17 percent in December 2014 in an attempt to deal with the runaway inflation brought about by the weakened ruble.

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Russia's currency has experienced a rollercoaster ride over the last year, losing half of its value against the dollar as investors dumped the currency after international sanctions were imposed on Russia for its role in the uprising in Ukraine and annexation of Crimea.

Russia's Central Bank
Andrey Rudakov | Bloomberg | Getty Images

Fast forward to June 2015, however, and although inflation remains high (at 15.8 percent in May, according to the central bank, although the rate is falling) the ruble has strengthened to trade around 55 to the dollar, down from a peak around 70 in February.

But Russia's poor economic growth outlook, brought about by the lower oil price and its international isolation due to sanctions, looms large for the central bank. In April, Russia's gross domestic product (GDP) decreased by 4.2 percent compared to the same month in the previous year.

Lower growth gives Nabiullina room to cut rates more in a bid to stimulate borrowing and spending among consumers and businesses, in an effort to boost GDP.

"The Bank of Russia will be ready to continue cutting the key rate as consumer price growth declines further in compliance with the forecast but the potential of monetary policy easing will be limited by inflation risks in the next few months," the bank said in a statement Monday.

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As such, economists expect the bank to continue to cut, but without the "shock and awe" tactics of May's significant cut.

"We think the Central Bank of Russia is in slightly less of a hurry to cut rates at this meeting and we anticipate that it will further reduce its pace of cuts pace to 50 basis points in subsequent meetings," Daniel Hewitt, an economist at Barclays, said in a note Monday.