Jan 30, 7:15 AM EST

Russia cuts key rate to help economy, leaving ruble to drop


AP Photo
AP Photo/Alexander Zemlianichenko
World Video

Latest News
Russia cuts key rate to help economy, leaving ruble to drop

Russia gives $3 billion Crimea bridge contract to Putin ally

Russian woman arrested after giving information to Ukraine

London summons Russian envoy after bombers near UK airspace

Syria talks in Moscow end without visible results

Putin marks Auschwitz liberation to press points on Ukraine

Buy AP Photo Reprints
Multimedia
A district summary of the Beige Book
Measuring economic stress by county nationwide
Mall malaise: shoppers browse, but don't buy
Unemployment by the numbers
Family struggles with father's unemployment
Saying an affordable goodbye
Hard times hit small car dealer
Latest Economic News
US economy slows to 2.6 percent growth in fourth quarter

Russia cuts key rate to help economy, leaving ruble to drop

Eurozone prices plunge 0.6 pct amid weak growth, cheap oil

Factory data shows Japan economy turning corner on recession

Almost half of US households exhaust their salaries

German unemployment up to 7 pct in Jan amid seasonal factors

Philippines: Growth shows we're no longer sick man of Asia

NYC economy lost $200M from fizzled storm, transit shutdown

Britain's economy loses steam in fourth quarter

As storm rushes in, airlines cancel while salt sellers gain

Interactives
Greece's Debt Threatens to Spread
State budget
gaps map
Auto industry problems trickle down, punish Tennessee county
Women give old Derby hats a makeover in tough economy
S.C. town deals with highest unemployment in South
How mortgages were bundled and sold as securities
Tracking the $700 billion financial bailout
Tracking the year's job losses
State-by-state foreclosures since 2007
Credit crisis explained
Presidents and their economic legacies
Lexicon of the financial crisis
Americans' addiction to debt
Multimedia
Russia Celebrates Summer Solstice

MOSCOW (AP) -- In a surprise decision, Russia's central bank on Friday cut its key interest rate, which it had raised sharply last month to support the collapsing ruble, in order to help the fading economy.

The move triggered a drop in the ruble, which was down more than 3 percent at 71 rubles against the dollar in early afternoon trading in Moscow.

The central bank explained its decision to cut the rate from 17 percent to 15 percent by saying that the risks of an economic slowdown are now higher than the risks associated with the ruble's drop. The currency's 50 percent drop since the summer has caused a spike in inflation.

Higher interest rates can help a currency but also hurt economic growth by making loans more expensive.

Analysts said Friday's move was likely due to pressure by government officials and Russian businesses, which are suffering from the high rates.

The central bank said it expected inflation, currently at an annual 13 percent, to peak in the middle of the year and fall below 10 percent next year as the economy adjusts to the weaker ruble.

"Inflation and inflation expectations are expected to decrease," the bank said in a statement.

The central bank had raised its key interest rate to 17 percent in December in a desperate attempt to curb the devaluation of the ruble, which was fueling inflation by raising the price of imports.

Market investors had expected the central bank to hold its interest rates at Friday's policy meeting since it had indicated it would begin to cut rates only when inflation starts declining. That said, the bank has been under pressure domestically to bring rates down to limit damage to economic activity.

"The lobby of bankers and industrialists is growing, with clear (almost aggressive) pressure on the Central Bank of Russia to cut," David Nagle, head of research of Moscow-based Renaissance Capital, said in an emailed note to investors.

Earlier on Friday, a top Russian official accused a leading rating agency of trying to turn tycoons against the Kremlin.

Standard & Poor's this week downgraded Russia's credit rating to a non-investment grade, for the first time in more than a decade.

In remarks in parliament on Friday, Deputy Prime Minister Igor Shuvalov said the goal of the downgrade was to push businesses "to withdraw their support" for the government and President Vladimir Putin.

Russia has exceptionally low levels of public debts level for a country with a "junk" status but the downgrade underlined investors' fears about the unpredictability of Putin's foreign policy and the collapse of the ruble.

© 2015 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. Learn more about our Privacy Policy and Terms of Use.

Latest News
Advertisement