Russia cuts interest rates in attempt to avoid further economic decline

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Russia cut interest rates on Friday last week in a move intended to stop the economy from falling even deeper into recession, which surprised economists and authorities alike. The Central Bank of the Russian Federation announced that it was cutting its lending rate from 17% to 14%, giving greater priority to ensure a prolonged decline is avoided, as opposed to fighting inflation or supporting the ruble.
Russia cut interest rates on Friday last week in a move intended to stop the economy from falling even deeper into recession, which surprised economists and authorities alike. The Central Bank of the Russian Federation announced that it was cutting its lending rate from 17% to 14%, giving greater priority to ensure a prolonged decline is avoided, as opposed to fighting inflation or supporting the ruble.

Russia’s economy greatly relies on oil and gas exports. Western sanctions imposed on Russia made it even more vulnerable to the steep downfall in global crude prices at the end of last year. As the ruble plunged to record lows against the dollar in December, the Bank of Russia significantly increased interest rates in an attempt to defend the currency and prevent inflation spiralling out of control.

The emergency move sparked many protests from Russian businesses and borrowers over the weekend. Inflation has continued to accelerate since last year, and it is currently running at 13%. However, the Central Bank stated an expectation for price pressures to slow down.

‘A further decrease of output is probable as a result of the worsening external conditions such as the price of oil and foreign financial markets inaccessibility for Russian borrowers,’ the Central Bank representatives said in a statement. Russia’s economy is anticipated to contract by just over 3% in the first half of 2015.