Rate Cut in Russia, Too

November 24, 2009

The Central Bank of the Federation of Russia reduced its refinancing rate by a further 50 basis points to 9.0%, the third reduction of that amount since September 30.  Previous cuts were made on September 15 and August 10 of 25 bps each and on July 13, June 5, May 14, and April 24 of 50 bps each.  In all, the cuts so far cumulate to 400 basis points, more than offsetting 300 bps of increase from June 2007 to December 2008.  The new refinancing rate is lower than on-year inflation of 9.7%.  However, inflation has dropped from 14.2% a year ago, and central bank officials have observed a downtrend of expected inflation and believe actual inflation will continue to slip. Like their counterparts in Colombia, today’s easing is intended in part to temper the ruble’s appreciation against the beleaguered dollar and to promote faster credit growth, which has been excessively soft.  Russian GDP tumbled 8.9% in the year to 3Q09, and industrial output is down more than 10%.  Economic fortunes in Russia are overly reliant on energy prices.

Copyright Larry Greenberg 2009.  All rights reserved.  No secondary distribution without express permission.

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