Bank of Russia Cuts Interest Rates

Russia's central bank headquarters in Moscow.

In its statement, the central bank said its emergency rate rise on Dec. 16—a 6.5 percentage point increase that came as the ruble was in free fall—had worked as expected, allowing it to now reduce its key rate to 15% from 17%.

The central bank said that while inflation—now running at 13.1%—is likely to continue to rise in the coming months, the deepening slowdown in the economy will bring down price growth later in the year. However, inflation won’t fall below 10% until January 2016, the bank said.

In emailed comments, the central bank’s chairwoman, Elvira Nabiullina, sought to justify the unexpected rate decision by saying December’s move was an emergency measure that had already helped address panic in the currency markets. A rate cut now “gives an opportunity to kickstart lending,” she said.

It is not clear what is actually behind the move, whether lending activity completely dried up at the higher rate or whether the central bank has cuts rates simply because of an overall slowdown in economic activity.

 -RW