Russia’s ruble extends its slide despite central bank action

Last month, the Bank of Russian Federation cut its interest rate for the fourth time this year to support the struggling economy. With a slump in oil prices weighing on the economy, borrowing costs remain half a percentage point short of a full rollback of an emergency rate increase in December.

Authorities claim that the country has already weathered the worst of the economic crisis, but the recent fall in the ruble following a drop in oil prices highlighted how fragile the situation remains.

“This chips away further at the credibility of the Russian central bank”, he said.

On Friday, the Bank of Russian Federation will have to balance inflation and growth risks as policy makers meet to set rates.

The ruble hit the psychological threshold of 66 rubles per euro in afternoon trading in Moscow, a four-month low.

The decision “indicates that the central bank is looking to strike the right balance between the desire to continue cutting rates and the need to keep inflation under control”, said Ivan Tchakarov, chief economist at Citigroup Inc. in Moscow. “The Russian central bank is keeping its consistency, improving its credibility, anchoring further market expectations on monetary easing”. The regulator estimates that the GDP decrease in Q2 2015 compared with the similar quarter last year is more significant than that in Q1 2015.

“The central bank removed the phrase about lowering rates in future, in order to reserve the possibility of omitting a rate cut at the September meeting”, VTB Capital economist Alexander Isakov said.

Russia’s economy has slumped into recession on the back of lower oil prices and Western sanctions over Ukraine.

The recent ruble weakness has raised concerns that another rate cut would put extra pressure on the currency, spurring inflation further.

The central bank is trying to tame stubbornly high inflation without sending the economy into a deeper recession. The new rate decision is expected to be announced at 10:30 GMT, with most analysts, including HSBC, Raiffeisen Bank and Sberbank, expecting another cut to 11 percent, which would be the fifth this year, RBC reports citing its poll. Annual inflation stood at 15.8% in late July, well above the central bank target of 4%.