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Russian Central Bank lowers key interest rate to 11.5 pct

Xinhua, June 16, 2015 Adjust font size:

Russian Central Bank on Monday lowered its key interest rate by one percentage point to 11.5 percent, the fourth cut this year in an easing cycle that came after it raised interest rates dramatically in December to 17 percent.

"The bank's board of directors decided to lower the annual key interest rate from 12.5 percent to 11.5 percent, taking into consideration the weakening inflation risks in a considerable cooling economy," the bank said in a press release.

The bank said it would continue to lower key rates in pace with the slowing of inflation in the country, noting that "the potential of monetary policy easing will be limited by inflation risks in the next few months."

After the rate decision, Central Bank Governor Elvira Nabiullina told reporters that the Russian financial markets were stabilizing and inflation expectations among the population were subduing.

While Russian statistics agency Rosstat said that inflation in the first week of June reduced to zero level for the first time since August 2014, Nabiullina put the annual inflation rate to be around 11 percent in December 2015.

However, the bank head warned that "the bottom of economic recession, in our opinion, has not yet been passed," saying that annual economic growth would only resume around the middle of next year.

As Rosstat predicted the GDP in the first quarter of 2015 to shrink 2.2 percent year on year, a 0.3-percent decrease compared with the forecast made in mid-May, Nabiullina attributed the continuous contraction to falling investments and shrinking consumers demand.

Nabiullina said that Russian businesses still cannot fully substitute foreign credits by lending at domestic market, while the bank assumes that foreign debt repayment by companies and banks will remain the main cause of Russia's capital outflow until 2018.

Also, the price fall of oil and other commodities has increased the uncertainty of Russia's economic future, she said.

The Russian economy has plunged into recession amid the drop of global oil prices and Western sanctions imposed over Moscow's alleged intervention in the Ukraine crisis.

All these factors together render the Russian economy unattractive for investments, the bank head said.

The central bank elevated its 2015 GDP forecast to a decline of 3.2 percent from a 3.5 to 4 percent contraction seen previously.

Russia's GDP will growth in 2017-2018 moderately by about 1.7 to 2.4 percent, RIA Novosti news agency quoted Nabiullina as saying. Endite