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Russia makes small rate cut as rouble weakens

Russia makes small rate cut as rouble weakens

MOSCOW: Russia’s central bank on Friday made its smallest interest rate cut this year as it juggled attempts to resuscitate the economy with inflation fears after a recent slide in the rouble.

The bank cut its key rate by 50 basis points to 11 per cent in its fifth reduction since January, as it struggles to breathe life into an economy battered by lower oil prices and Western sanctions over Ukraine.

Following the announcement the Russian currency on Friday briefly dropped past 67 roubles against the euro and 61 roubles against the dollar, a new four-month low.

The Bank of Russia said the rate cut was made “taking into account that the balance of risks is shifting towards considerable economy cooling despite a slight increase in inflation risks”.

Analysts had widely predicted a more limited cut but a recent fall in the rouble — which has lost around 15pc of its value since May — had cast doubt whether even that would happen.

“Such a cautious movement is explained by the growing volatility on the market, the weakening of the rouble and the high rate of inflation,” said Dmitry Lepetikov from VTB24 bank.

Annual inflation rates in July rose for the first time in several months to 15.8pc from 15.3 in June on the back of a hike in utility charges, the central bank said on Friday.

“The recent fall in the rouble triggered a clear shift in the [Central Bank] Council’s tone, and policymakers are no longer committing themselves to lowering interest rates further,” Capital Economics said in a note.

The bank said on Friday it will “further decide on its key rate depending on the balance of inflation risks and economic cooling”.

Oleg Kouzmin, an economist at Renaissance Capital, said expectations were that the Russian central bank would leave the rate untouched at its next meeting in September.

Published in Dawn, August 1st, 2015

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