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Russia slashes interest rates further

Russia's central bank cut its main interest rate once again on Friday, in a further effort to stimulate the country's sanctions-hit economy.

The Central Bank of Russia (CBR) cut the key rate by 1 percentage point to 14 percent. It comes after the rate dropped to 15 percent from 17 percent at the end of January.

The Russian ruble strengthened against the dollar following the decision.

In a statement accompanying news of the cut, the CBR said it had taken into account that the "balance of risks is still shifted towards a more significant cooling of the economy."

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

The percentage point cut was broadly in line with consensus, although some analysts -- such as Dan Salter, head of equity strategy at Renaissance Capital - had expected.

"We were of the view that with the Russian economy in recession this year, that the central bank could afford to front-load the rate cut slightly more than they did," he told CNBC 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. The controversial move was criticized by a number of high-profile government ministers, including President Vladimir Putin.

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The country still faces major challenges on both of these fronts, however. Over the last 12 months, the ruble has weakened close to 70 percent against the dollar, and inflation came in at 16.7 percent in February, according to official figures.

The CBR said Friday that it expected annual price growth to slow to 9 percent over the year, and to hit its target of 4 percent in 2017.

"As inflation risks abate, the Bank of Russia will be ready to continue cutting the key rate," it said in a statement.

Renaissance Capital's Salter agreed that he saw a "gradual" decline in inflation over the year, and, as a result: "The central bank does have justification in cutting rates down, we believe."

Russia's broader economy has been hard hit by economic sanctions imposed on it following its annexation of Crimea in 2014 and the sharp decline in global oil prices. Now, ratings agency Moody's has warned the country's economy could shrink by as much as 5.5 percent in 2015 -- a far cry from the 5.6 percent growth seen back in 2008.

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On Wednesday, Andrey Kostin, chief executive of Russia's second-largest bank, VTB, called for "at least" a 100-basis-point cut to the main rate.

"My major problem is the high interest rate," Kostin told CNBC. "Funding has become very expensive. If the central bank managed to bring the interest rate down, it would improve the situation."

- By CNBC's Katrina Bishop. Holly Ellyatt contributed to this report.