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Russia cuts interest rates

Article By: ,  Financial Analyst
March 13, 2015 3:26 PM

Russia's central bank has cut its key interest rate today (March 13th) by one percentage point to 14 per cent, in a bid to stimulate the country's economy. The Central Bank of Russia (CBR) had already cut the rate to 15 per cent from 17 per cent at the end of January.

In a statement accompanying news of the cut, the CBR said it had taken into account that the "balance of risks is still shifted towards a more significant cooling of the economy." The rate rise strengthened the rouble against the dollar.

"We were of the view that with the Russian economy in recession this year, that the central bank could afford to front-load the rate cut slightly more than they did," Dan Salter, head of equity strategy at Renaissance Capital, told CNBC.

Inflation soaring

The country had increased interest rates last year up to 17 per cent to fight the decline of the rouble, which fell 46 per cent in 2014. The Russian economy contracted by 0.5 per cent in November, representing the country's first fall in gross domestic product (GDP) since October 2009.

The CBR also slashed its growth forecast today. It expects the Russian economy to contract by between 3.5 per cent and four per cent in 2015, worse than its January prediction of three per cent.

Western sanctions and declining oil prices have hit the country hard, as the economy relies heavily on revenues from oil exports. Production levels are not set to change after members of the Organization of Petroleum Exporting Countries voted against an output cut in 2014. Inflation is also soaring, hitting 16.7 per cent in February, with food prices jumping by 23 per cent compared to last year.

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