MOSCOW - Russia’s central bank cut Friday its main interest rate to 15 percent from 17 percent in a move that caught markets by surprise, sending the ruble tumbling.
“The Bank of Russia Board of Directors decided to reduce the key rate from 17.00 to 15.00 percent per annum,” the central bank said in a statement.
It added the cut was “aimed at averting the sizeable decline in economic activity against the background of negative external factors.”  The bank was apparently referring to Western sanctions over the Ukraine conflict as well as falling oil prices. It said the interest rate could be cut “due to the shift in the balance of risks of accelerated consumer price growth and cooling economy.”
The central bank predicted that the economy would contract at an annual rate of 3.2 percent in the first half of 2015.
Economists had largely predicted that the central bank would decide to keep the rate the same in order to keep a lid on inflation, although the high interest rate slowed investment in the economy and bankers and industrial leaders were calling for a cut. The head of the central bank, Elvira Nabiullina, said last week that the central bank’s priority was curbing inflation because that was the worst problem for the public and business.
She said the bank would “be ready to lower the interest rate if there is a stable trend of falling inflation and expectations of inflation.”  The central bank on December 15 jacked up the key rate to 17 percent from 10.5 percent in a bid to stabilise the ruble.   The 17 percent rate as widely seen as untenably high.  The central bank said Friday this hike had “resulted in stabilisation of inflation and depreciation expectations.”  The ruble fell on the news, hitting 81 against the euro and 71 against the dollar.  It stood at 80.15 against the euro and 70.62 against the dollar at around 1130 GMT.
These levels had not been reached since December 17, a day after “Black Tuesday” when the ruble suffered its worst plunge since President Vladimir Putin came to power 15 years ago.