The Russian Central Bank on Thursday agreed a half-point cut in its benchmark refinancing rate to 9.5 percent, the lowest level in Russia's modern history, in a bid to stimulate the economy. The cut, effective from Friday, was agreed "with the aim of additionally stimulating credit activity in the banking sector of the economy," the Central Bank said in a statement.
The refinancing rate stood at 10 percent between June 2007 and February 2008 but this is the first time in Russia's post-Soviet history it has been cut below the 10 percent level. The Central Bank has been progressively cutting interest rates since April in a bid to offset the severe impact of the global economic crisis on Russia and as the threat of inflation eases and the ruble appreciates.
It said that inflation had been zero in the first three weeks of October compared to the previous month and that over the past 12 months consumer prices had risen 9.9 percent, a rate much lower than that of the pre-crisis years. Industrial production - hit hard by the economic crisis - was also showing positive changes although the real sector of the economy remained in need of credit, the bank added.
The Bank left the door open for further interest rate cuts, saying that any further steps would be determined by trends in inflation, production and credit activity. Since the start of the easing cycle in April, the Central Bank has now cut rates eight times from a peak of 13 percent. Russia, whose economy is still hugely dependent on energy exports, was badly hit by the crisis after enjoying years of strong growth and President Dmitry Medvedev has said the economy will shrink 7.5 percent this year.
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