Russian Central Bank Slashes Interest Rates As The Economy Weakens

The Russian central bank has dropped its key interest rate from 17% to 15% as the outlook for the country's economy in weakens.

The Bank of Russia hikes interest rates by 6.5% last month in a shock decision that came at 1am local time. The measure was intended to head off a collapse in the value of the ruble, which fell to an all-time-low of 80 rubles to the dollar and 100 rubles to the euro in December.

However, the sharp rate hike put pressure on the country's already struggling economy, which was being buffeted by a combination of collapsing oil prices and Western economic sanctions over Russia's role in the ongoing crisis in Ukraine. Despite consumer price inflation remaining well above the bank's target, the worsening outlook for the economy has prompted the central bank to lower its key rate.

Here's the statement (emphasis added:

The Board of Directors of the Bank of Russia January 30, 2015 decided to cut the key interest rate of 17,00% to 15,00% per annum, given the change in the balance of risks accelerating the growth of consumer prices and the cooling economy. The Bank of Russia's sharp increase in the key rate adopted on December 15, 2014 has led to the stabilization of inflation and devaluation expectations to the extent expected by the Bank of Russia. We observed a surge in inflation caused by rapid adjustment of prices to the weakening of the ruble but what has happened is time-limited in character. In the future, inflationary pressures will be restrained by a decrease in economic activity. According to the forecast of the Bank of Russia, the growth rate of consumer prices fell to below 10% in January 2016.