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.
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.
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.