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Russian central bank cuts key interest rate to help economy

Updated at: 03/13/2015 9:52 AM
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(AP) MOSCOW - MOSCOW (AP) — Russia's central bank cut its key interest rate on Friday by one percentage point to 14 percent in an attempt to support the economy, which is sliding into a brutal recession.

It is the second interest rate cut in as many months as the Central Bank reverses some of the sharp rate increases it made in December — when it hiked them from 10.5 percent to 17 percent — to support the then-collapsing ruble. Higher rates tend to bolster a currency but hurt the economy by making borrowing more expensive.

The Central Bank said in a statement Friday it cut the rate again because "the balance of risks has shifted in the direction of a more significant cooling of the economy." It said it was careful not to exacerbate inflation, which hit an annual rate of 16.7 percent in February.

The bank predicts Russia's economy will shrink by between 3.5 percent and 4 percent this year, while the Economic Development Ministry forecasts a 3 percent drop.

Over the past six weeks, the ruble has regained some of its lost value against foreign currencies, including the strong dollar, on the back of a recovery in world oil prices, Russia's key export and revenue generator. The ruble traded Friday at just above 61 to the dollar, while it was over 69 at the start of February.

In 2014, the ruble lost around half of its value against the dollar under pressure from U.S. and European Union sanctions over the conflict in Ukraine and a sharp drop in the oil price.

(Copyright 2015 by The Associated Press. All Rights Reserved.)