Russia's central bank cut its key interest rate by 50 basis points to 11 percent on Friday as expected, saying risks of the economy cooling now outweighed inflation risks. Ciara Lee reports.
Its economy has slumped in recent months and Russia's central bank has responded. It cut its key interest rate by 50 basis points to 11 percent. The bank says risks of the economy cooling now outweigh inflation risks, and that an unexpectedly severe contraction in demand in the first half of 2015 meant it may revise down its forecast. It had previously forecast a 3.2 percent GDP contraction this year. The country's economy has been hit by sanctions linked to the Ukraine conflict and last year's collapse in the price of oil. Panmure Gordon's David Buik (SOUNDBITE) (English) DAVID BUIK, MARKET COMMENTATOR, PANMURE GORDON, SAYING: "Sanctions are beginning to hurt very badly even though the external business community is doing its level best to keep the dialogue going and keep business going as best they can around the sanctions. But I think the rest of the world better wake up and understand we cannot have this impasse. It's extremely dangerous for the world politically, economically and culturally." Analysts had expected a cautious half-point cut rather than a bigger one because a recent slide in the rouble threatens to reignite inflation. The rouble, which had already been down over 1 percent before the central bank decision, fell further after the cut. In its statement, the bank said consumer price inflation stood at 15.8 percent as of July 27, up from 15.3 percent in June.