Central Banks

Russia central bank cuts key rate to 15%—1 month after hike

Russia's central bank cut its key interest rate to 15 percent on Friday, just one month after a surprise hike, amid calls from government officials and business leaders for a cut to stimulate growth in the country's sanctions-hit economy.

The Central Bank of Russia (CBR) said in a statement that it had taken the decision, "due to the shift in the balance of risks of accelerated consumer price growth and cooling economy."

The Russian Ruble fell 2.7 percent to trade around 70 rubles against the dollar Friday.

The latest monetary policy decision comes after December's surprise hike in its key interest rate from 10.5 percent to 17 percent as the central bank tried to shore up the weakening ruble and combat inflation. In 2014, price growth was estimated at 11.4 percent, according to Russian statistics agency Rosstat.

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The central bank defended the move, saying the hike had, "resulted in stabilization of inflation and depreciation expectations to the extent the Bank of Russia expected."

It said that the current surge in inflation was driven by the decline in the ruble, but this was "time-limited."

I hope interest rates are cut: Russian Fin Min

Furthermore, the bank argued that inflationary pressures would be contained by a "decrease in economic activity."

Although it said inflation could rise in the next few months, it added that it expected price growth to have fallen below 10 percent by January 2016, as subdued consumer demand.

One market analyst said the decision was another, "dramatic action taken by the central bank to save its economy."

"The 17 percent interest rate was ridiculous and made no sense for consumers when the economy is consistently moving towards the verge of collapse," Naeem Aslam, chief market analyst at Ava Trade, said in a note Friday. Aslam said the currency could weaken even further to 75 rubles against the dollar.

Andrey Rudakov | Bloomberg | Getty Images

The decision comes amid pressure for a rate cut from high-profile government ministers, including President Vladimir Putin, who criticized the bank for its last move.

Timothy Ash, head of emerging markets research at Standard Bank, said in a note Friday that the cut could be politically-motivated.

"Not sure what this changing balance of risks is exactly...it all seems pretty similar to when they hiked rates, the only difference is that there is a new deputy governor for monetary policy," he said.

"The move will be seen as politically-driven, and (will cause) further erosion of CBR credibility, which was already badly damaged last year with the shambolic management (or lack of it) of the ruble."

Russia's economy has been severely impacted not only by sanctions imposed on it for its incursions into Ukraine, which have isolated it from international business and trade, but from the falling oil price which has plummeted around 60 percent since June 2014, hurting its exports and revenues. As a consequence, Russia is expected to enter recession in 2015.

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Finance Minister Anton Siluanov told CNBC Thursday that he hoped interest rates would be cut, but that the central bank was independent and could not be influenced. Meanwhile, Andrey Kostin, chief executive of Russia's second-largest bank VTB, also said that he hoped the central bank would lower rates, but would do so gradually.

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt.