Russian central bank cuts interest rate to 10.5%

Russia's central bank cut its key interest rate by 0.5 percentage points to 10.5 percent on Friday, citing a steadying rate of inflation for the move.

Experts had been split over whether the Bank of Russia would hold or cut its main one-week repo rate from 11 percent on Friday, with inflation still high and the Russian economy contracting.

Inflation came in at 7.3 percent for a third consecutive month in May, according to the central bank.

"The Board of Directors notes the positive trends of more stable inflation, decreased inflation expectations and inflation risks against the backdrop of imminent growth recovery in the economy," the Bank of Russia said in a statement on its website.

"Slowing inflation allows more certain reliance on sustainable inflation reduction to less than 5 percent in May 2017 and the 4 percent target in late 2017, taking into account the decision just made and the retention moderately tight monetary policy," it added.

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The bank also flagged the possibility of a further rate cut, based on estimates for inflation risks.

However, Capital Economics' Liza Ermolenko said earlier this week that the big decline in Russian inflation had already happened and that it would edge up over the coming months.

"Base effects are likely to push up the headline inflation rate over the coming months and we expect it to peak at around 7.8 percent year-on-year in the third quarter of this year. This, coupled with stubbornly high inflation expectations, feeds into our forecast for the central bank to continue to resist calls to ease monetary policy in order to support the economic recovery," the emerging markets economists said in a report.

After Friday's announcement, the Russian ruble rose to 64.75 to the U.S. dollar from 64.64, before falling to 64.45.

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