Russia's central bank cut its key interest rate by 50 basis points on Friday, amid signs of renewed weakness in the country's currency, the ruble.
The move by Russia's Central Bank (CBR) was as expected, according to a poll of analysts by Reuters, and eases the pace of cuts to its key interest rate. In a statement, the bank said it took the decision "taking into account that the balance of risks shifts towards the considerable economy cooling despite a slight increase in inflation risks."
The bank also forecast the Russian economy could weaken further.
"Major macroeconomic indicators demonstrate further economy cooling. The Bank of Russia estimates gross domestic product (GDP) decrease in the second quarter of 2015 compared with the similar quarter last year to be more significant than that in the first quarter of 2015."
"The economic situation in Russia will further depend on the dynamics of world energy prices and the economy's ability to adapt to external shocks," the bank added, forecasting that the probability of oil prices, on which Russia relies for much of its revenues, remaining below US$60 per barrel "for a long time" was now more likely.
The bank cut its key interest rate by one percent in June, to 11.5 percent, the fourth consecutive month of declines, but warned at the time that the pace of easing could slow. It said then in a statement that the scale of future rate cuts would depend on the rate of inflation.
Inflation in Russia currently stands at 15.3 percent in June although the rate is heading in the right direction.
The central bank is struggling because it wants to stimulate economic growth (the economy contracted 1.9 percent in the first quarter), spending and borrowing by lowering interest rates without exacerbating weakness in the ruble, which increases inflation, which in turn pressures Russian consumers. The CBR has a target of 4 percent inflation by 2017.
The current trend of central bank easing comes after the bank raised the key interest rate to 17 percent in December 2014 in an attempt to deal with runaway inflation brought about by the weakened ruble.