World Economy

Russia Rates Cut as Economy Struggles

Russia Rates Cut as Economy StrugglesRussia Rates Cut as Economy Struggles

The Russian central bank cut its main lending rate by one percentage point on Monday, extending an easing cycle as inflation slows and the economy struggles.

The bank lowered its one-week minimum auction repo rate to 11.5 percent from 12.5 percent, it said in a statement after a scheduled monetary policy meeting, Reuters reported.

The central bank has come under pressure from some officials to ease policy after it raised rates by 6.5 percentage points to 17 percent in an emergency move in December to stem a run on the ruble.

Russia’s economy is feeling the impact of western sanctions over the crisis in Ukraine and a fall in global oil prices.

Economists polled by Reuters last week had predicted the bank would lower rates by 100 basis points.

The central bank repeated in its statement that it was concerned about a “considerable” cooling of the economy. It said it expected gross domestic product to contract by 3.2 percent in 2015.

“The further economic situation will depend on the dynamics of energy prices and the economy’s ability to adapt to external shocks,” the bank said.

The weaker oil prices and sanctions are squeezing Russia’s export earnings and dampening investment. Russian banks in particular have suffered, and some analysts say the pain felt by the banks was an important reason behind earlier rate cuts.

The bank said on Monday it was ready to ease policy further should inflation continue on a downward trend.

Inflation eased from a peak of 16.9 percent in March to 15.8 percent in May, while gross domestic product fell by 4.2 percent year-on-year in April, the largest monthly fall since 2009.

The Russian ruble was little changed after the rate decision, since the rate cut was in line with market expectations.