Russia's Central Bank Cuts Key Interest Rate

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Friday, Russia's central bank lowered its key policy rate by 25 basis points to a record low in December. This was the tenth rate cut since April 2009.

The Central Bank of the Russian Federation reduced its refinancing rate to 8.75% from 9%, effective from December 28. The last time the central bank cut the rate was on November 24, when the rate was cut by 50 basis points.

The central bank said the rate cut decision was taken to ease credit availability and to increase lending. Moreover, the current level of inflation allows the central bank to cut rates without raising inflationary pressure. Russia's consumer price annual inflation was 9.1% in November, the smallest in more than two years.

The International Monetary Fund on December 14 that Russia's central bank has maintained a more flexible exchange rate policy and has appropriately taken advantage of the notably lower inflationary pressures to reduce policy interest rates. It said the central bank should be more ambitious in reducing inflation.

"With inflation already running at 6 percent at an annualized rate, the CBR's current objective for 2010 is unambitious, especially as it entails no further decline compared to current levels," the IMF said.

Moreover, the IMF said financial conditions in Russia have improved compared to six months ago in line with improvements in the global economy. However, the recovery would be sluggish. It forecast Russia's economy to expand by 3.5% in 2010.

Friday, Russia's central bank lowered its key policy rate by 25 basis points to a record low in December. This was the tenth rate cut since April 2009. (Market News Provided by RTTNews)