Russia slashes interest rates

Russian banking regulator cuts key interest rates in response to rally in rouble and signs of stabilisation in inflation figures

Updated Jul 28, 2015

The Central Bank of Russia (CBR) lowered interest rates on Thursday as the rouble continued to appreciate while the Russian economy began showing signs of a more stable inflation. As the rouble has rallied strongly over recent weeks, it reduced the need for high interest rates to defend the currency.

Although 1 percentage point reduction was expected by majority of analysts, the CBR reduced its key interest rate by 1.5 percentage points, from 14 percent to 12.5 percent. Falling oil prices and Western sanctions imposed on the country over the conflict in Ukraine have been affecting the economy negatively.

In order to fight off these risks and defend the rouble, the CBR increased its interest rates drastically in December to 17 percent. Since then, the bank has been cutting rates gradually. With the appreciation in the rouble, the Russian economy has started to perform better in the last couple of months.

However, according to the central bank, the inflation in Russia is expected to fall below 8 percent in 12 months, while the economic output is forecasted to decline due to cyclical factors. Russia’s latest interest rate cut changed the global order of countries having the highest interest rates.

When Russia hiked its rates in December, it was the country with highest rates. However, as Russia cut its rates on Thursday and Brazil increased it by 50 basis points for the fourth consecutive month on Wednesday, the south American country has the highest rates among emerging markets.

Brazil’s move is seen as a way to convince investors that the government is serious about controlling the prices, despite fears that further tightening will make the expected recession worse. The list excludes countries like Argentina or Venezuela, which have really high interest rates, around 20 percent.

TRTWorld and agencies