Russia cuts interest rate in surprise move seen as recession response

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Russia cuts interest rate in surprise move seen as recession response

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Russia’s central bank is keeping the financial world guessing by unexpectedly cutting its main interest rate to 15 percent.

Just over a month ago it pushed the rate up by 6.5 points to 17 percent after a run on Russia’s currency the rouble.

The cut comes amidst fears of recession linked to the fall in oil prices and the effects of Western sanctions over Ukraine.

The move implies a shift in the bank’s priorities – away from clamping down on rising inflation and supporting the rouble and towards trying to support the weakening economy, perhaps under pressure from the Kremlin as well as Russian banking and business lobbies.

Following the borrowing cost decision, the rouble extended losses to trade as much as 4.0 percent down on the day against the dollar, though it later clawed back some of the losses.

“Today’s decision to lower key interest rate by 2.0 percentage points is intended to balance the goal of curbing inflation and restore economic growth,” the bank’s governor, Elvira Nabiullina, said in an emailed statement after the announcement.

She said the rate remained high enough to allow the bank to reach its inflation target in the medium term.

President Vladimir Putin, who won popularity by providing Russians with more financial stability after the chaos of the 1990s following the fall of the Soviet Union, did not comment and the Kremlin denies influencing central bank decisions.

But Finance Minister Anton Siluanov said he backed the rate cut, and that the central bank had good reason to say the situation on the currency market was under control.

“The decision appears to be politically driven, since it is a cut that shows the central bank is worried about the risks to the banking sector. It looks like the central bank’s hand has been forced,” said Nicholas Spiro, managing director of Spiro Sovereign Strategy in London.