With the rouble rallying against the dollar and the euro , the Central Bank of Russia (CBR) yesterday announced that it was bringing down its key interest rate from 14% to 12.5%. “Amid rouble appreciation and significant contraction in consumer demand in February-April 2015, monthly consumer price growth is declining and annual inflation is tending to stabilize,” it said in a statement. The CBR estimates that the annual consumer price growth rate was running at 16.5% by the end of April – a 0.4% on March and is predicting that annual inflation will slow down to less than 8% by this time next year and 4% by 2017.
“The bigger-than-expected cut in Russian interest rates today suggests that policy makers will take advantage of the rouble’s recent strength to unwind the policy tightening that was put in place in the heat of the currency crisis towards the end of last year,” Neil Shearing, chief emerging markets economist for Capital Economics told the Financial Times.
The rouble has been one of the world’s best performing currencies this year after falling oil prices and sanctions pushed it to record lows against the dollar last year. In an attempt to shore up the currency, the central bank raised rates from 10.5 % to 17% in an emergency meeting in the middle of the night in December. The Russian currency initially fell against the US dollar on Thursday’s news, but later recovered to trade up by as much as 1.4 per cent on the day. Russia’s Micex stock index added 0.5 per cent.