Russia’s central bank cuts key interest rate

The bank also said that an unexpectedly severe contraction in domestic demand in the first half of 2015 meant that it may revise down its output forecast.

The ruble fell further after the interest cut, trading in the afternoon at 61 against the dollar.

“Major macroeconomic indicators demonstrate further economy cooling”.

The central bank raised the rate to 17 percent overnight in December last year to limit a plunge in the value of the ruble, but has been trimming the rate back down this year as the ruble recovered somewhat.

Hit by oil prices that halved from a year ago together with Western sanctions, Russia’s economy has slid into recession for the first time since 2009 and, according to the government, will shrink by up to 3% this year.

Although the price of oil began to climb in April, since the beginning of June it has fallen again.

Economists expect the Russian economy to contract by 4.5pc in the second quarter of this year, compared with a year earlier.

The bank cut its key interest rate by one percent in June, to 11.5 percent, the fourth consecutive month of declines, but warned at the time that the pace of easing could slow.

The bank’s decision, which was announced Friday, comes at a time when the ruble has dropped to a four-month low. In a statement, the bank said it took the decision “taking into account that the balance of risks shifts towards the considerable economy cooling despite a slight increase in inflation risks”.

While ruble weakness is beneficial for Russian Federation by offsetting the effect of falling oil prices on the national budget, the downside is that it boosts the price of imported goods and risks driving inflation already 11 percentage points higher than the official target.

The next rate-setting meeting is scheduled for September 11.