St Petersburg International Economic Forum

Why I won’t lower rates ‘fast’: Russian Central Bank Governor

Aiming for 4% inflation: Central Bank of Russia Governor
Aiming for 4% inflation: Central Bank of Russia Governor
Don't see US rate hike risks: Central Bank of Russia Governor
Don't see US rate hike risks: Central Bank of Russia Governor
Russia economy: What you need to know
Russia economy: What you need to know

Those expecting further swingeing interest rate cuts from Russia as the country's inflation slows, or a U.S. Federal Reserve-style bond-buying program, may be disappointed.

The Central Bank of Russia is concerned about cutting rates "too fast", after a series of big cuts this year, Elvira Nabiullina, governor of the Central Bank of Russia, told CNBC.

Nabiullina told CNBC "Attempts to reduce the interest rates too fast or even acquire certain assets may simply lead to stronger inflation, to an outflow of capital or to dollarization of the economy, and that would slow down the economic growth, other than promote it."

She added that the bank is ready to provide "raw liquidities" to the country's banking system if needed.

Russia's economy has faltered and inflation rocketed in the last year thanks to the triple shocks of sanctions from the West over its actions in Ukraine, the oil price decline, and the ruble rout.

In December 2014, the central bank shocked the market when it hiked interest rates from 10.5 percent to 17 percent as it tried to shore up the weakening ruble and combat inflation.

Elvira Nabiullina
Andrey Rudakov | Bloomberg | Getty Images

As part of its efforts to combat the weakening currency, it also announced in November plans to allow a free float of the ruble, pump more money into its banks and relax banking rules to minimise losses to banks from the currency crisis.

"The currency was under a huge stress, under a huge pressure," Nabiullina recalled.

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However, the bank isn't targeting a specific valuation for the ruble.

"We are not planning on targeting any particular level of currency exchange. And all of our decisions pertaining to the interest rate we are making in order to achieve our inflation target," Nabiullina, a former minister of economic development one of Putin's closest economic advisers, said.

Since then, the CBR has cut rates several times, most recently on Monday when it reduced its key rate by 1 percentage point to 11.5 percent.

The central bank is forecast to cut its key rate to 9 percent by the end of 2015 by Anna Zadornova, economist at UBS.

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It looks like it will be some time before the bank is close to its 4 percent target. Inflation is projected to drop from 15.6 percent annually (as of June 8) to under 7 percent in June 2016, according to its own forecasts.

While there are some signs Russia's economic slide is slowing, the country's gross domestic product is still expected to shrink this year, and is very vulnerable to any further oil price shocks.

Nabiullina acknowledged that "it's premature to drink champagne" at the central bank.

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