Russian central bank slashes key rate sharply to 14%, flags more cuts
A general view shows the Central Bank headquarters in Moscow, Russia, Jan. 30, 2015. (Reuters Photo)


In a sharper-than-expected move, Russia's central bank lowered its key interest rate to 14% on Friday and said it saw room for cutting rates further this year, as it tries to manage a shrinking economy and soaring inflation.

The central bank met after it unexpectedly cut the key rate to 17% earlier in April following an emergency rate increase to 20% days after Russia sent tens of thousands of troops into Ukraine on Feb. 24.

Friday's rate cut exceeded expectations for a 200-basis-point move in a Reuters poll from earlier this week. Analysts predicted Russia would need lower rates in the face of a looming economic recession following the West's imposition of unprecedented sanctions.

"If the situation develops in line with the baseline forecast, the Bank of Russia sees room for key rate reduction in 2022," the central bank said in a statement.

A Reuters poll showed earlier on Friday that the central bank was expected to slash its key rate to 10.5% by the year-end as the firming rouble helps cap inflationary risks. read more

"Rouble exchange rate dynamics will remain a meaningful factor shaping the path of inflation and inflation expectations," the central bank said.

The central bank said consumer inflation was on track to accelerate to 18-23% in 2022, far exceeding the 4% target, which could be reached in 2024. It was at 17.6% as of April 22.

High inflation dents living standards and has been one of the key concerns among Russians for years.

The central bank now needs to tame inflation that is near 20-year highs, while steering the economy through its steepest contraction since the years following the 1991 fall of the Soviet Union. read more

Russia's export-dependent economy will shrink 8-10% this year, the central bank's renewed set of forecasts showed.

Central Bank Governor Elvira Nabiullina will shed more light on the bank's forecasts and policy plans at a media briefing at 1200 GMT.

The next rate-setting meeting is scheduled for June 10.