Russia's central bank just slashed rates

Elvira NabiullinaREUTERS/Sergei KarpukhinRussia’s central bank chief Elvira Nabiullina attends ‘The Russia Forum 2013’, an annual business and investment conference, in Moscow, April 19, 2013.

The Russian central bank has slashed its key interest rate from 14% to 12.5% due to “signs of stabilisation in annual inflation”.

Since the collapse of the oil price last year and the onset of international sanctions due to Russia’s involvement in the ongoing crisis in Ukraine the Russian central bank has been caught between the vice of high inflation and slowing growth.

However, in recent months the country has started to exceed expectations on the former, allowing the central bank to ease its headline policy rate more quickly than many expected.

As the CBR said in its statement today:

According to the Bank of Russia’s forecast, rate of growth in consumer prices is slowing earlier than previously expected. Annual inflation will fall to less than 8% a year and move towards the target level of 4% in 2017. As a further weakening of inflationary risks, the Bank of Russia is ready to continue the reduction in the key rate.

However, the bank still expects a significant decline to GDP in the first quarter and is warning that the domestic situation could well worsen in the short term. It notes reduced retail lending, low investment and weak domestic demand as factors that could all dampen the country’s growth outlook.

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