Russian central bank announces rate cut

Feb 23rd, 2010 | By | Category: Central Bank

The Russian Central Bank (CBR) today announced a cut of 25 basis points in its refinancing rate, bringing the rate down to 8.50%. The CBR hopes to stimulate growth in the economy with this monetary policy easing.

The strength of the rouble has been helping to keep inflation down and there is a small upside risk on CPI. Nevertheless, there is a possibility that the rouble may weaken, so the CBR may be unwilling to reduce the rate further.

Demand in Russia continues to be weak and the unemployment situation has worsened. As a result, annualised inflation declined in January to 8% and a further decline is predicted this year. Average inflation for the year is estimated to be around 7%.

Due to the strong rouble, weak domestic demand and this disinflation, the CRB wishes to stimulate lending and support the real economy. In short it wishes to act like a typical central bank and deliver market monetary policy guidance.

However, with the weak fiscal position and risk of the rouble weakening, the Russian Central Bank will need to be careful. Despite signs that the domestic market may be in recovery, demand in the country is predicted to be weak for some time yet and there is a limit to how much the central bank will be able to cut rates.

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