The central bank will decide Friday whether to cut its interest rates for the fifth time this year in a bid to breathe life into Russia’s battered economy.
In a statement, the bank said it took the decision “taking into account that the balance of risk shifts toward the considerable economy cooling despite a slight increase in inflation risks”.
The 50 basis point cut means the central bank has now cut its one-week minimum auction repo rate by a cumulative 6 percentage points in 2015.
The suspension of foreign-exchange interventions indicates the central bank “remains vigilant with respect to how the weaker currency may translate into higher inflationary expectations”, Mr. Tchakarov said.
The ruble is on the skids – plunging 12% against the U.S. dollar in a month – and inflation is soaring.
The central bank raised the rate to 17 percent overnight in December last year to limit a plunge in the value of the ruble, but has been trimming the rate back down this year as the ruble recovered somewhat. Renaissance Capital, which expects a rate cut this week, said the risks to its interest-rate call are now skewed toward no change.
The national currency has lost about 15 percent since May as the government began buying foreign currency to replenish its worldwide reserves.
The rouble, which had already been down over 1 per cent before the central bank decision, fell further after the cut. The Russian ruble dropped by 2 percent on Monday, to almost 60 rubles against th… “With oil prices having gone south again, Russian Federation no longer looks as attractive”, said Zsolt Papp, a portfolio manager at J.P. Morgan Asset Management, which oversees $1.8 trillion in assets. He has reduced oil-and-gas-related investments broadly over the past few weeks.
Russian Federation has been grappling with the effect of western sanctions in recent months, as well as the fall in the price of oil, on which its economy is heavily dependent.
Exports are likely to decline less considerably given the floating exchange rate, the bank said.