By Scott Kanowsky
Investing.com -- Russia's central bank has lowered its key interest rate by 50 basis points to 7.5% on Friday, in line with economists' estimates, as it flagged lingering economic risks from Western sanctions despite an easing in inflationary pressures.
It marks the six straight cut to borrowing costs this year. The central bank had previously increased the main rate to 20% from 9.5% earlier in 2022 to turn around a decrease in the value of the ruble after the outbreak of the war in Ukraine.
By lowering rates, the central bank aims to ease upside pressure on the ruble, make lending cheaper, and, in turn, help stem some economic damage from the placement of European and the U.S. sanctions on Russia in response to the conflict. The USD/RUB was trading at 60.00 against the dollar as of 11:08 GMT (07:08 EST).
In a statement, the central bank said its latest rate decision was spurred on by subdued consumer demand and other "one-off factors," which led to a slowdown in annual inflation. However, cost expectations for both households and businesses are still "elevated," it warned.
"A further toughening of external trade and financial restrictions may also create significant proinflationary risks. They can lead to a greater reduction in the Russian economy’s potential than expected in the baseline scenario," the central bank said.
It added that, despite a pick-up in business activity in July, the external environment for the Russian economy remains "challenging" and is placing significant strain on production and logistics for firms.
Gross domestic product this year is expected to be closer to the "upper bound" of its July forecast of a contraction of 4% - 6%. Meanwhile, the central bank's annual inflation estimates were revised down to a range of 11% - 13% from the previous expectation for a slowing of 12% - 15%.