Central Bank Cuts Refinancing Rate

The Central Bank announced Thursday that it would cut its key refinancing rate to 12.5 percent, from 13 percent, as the government grows more confident that it has brought inflation and the volatile ruble under control. The reduction, which will also see the repo and Lombard rates cut to 11.5 percent, takes effect Friday. The decision comes a day after Prime Minister Vladimir Putin appeared to suggest at a government meeting that lowering inflation should bring an interest rate cut. "According to Economic Development Ministry forecasts, April inflation will be 1.1 to 1.2 percent. That means we can expect a reduction of the Central Bank's refinancing rate. Isn't that so, Sergei Mikhailovich?" Putin said, addressing Central Bank Chairman Sergei Ignatyev. "Of course, we understand that this issue is within the exclusive competence of the Central Bank's board," he added, without waiting for Ignatyev's response. Two weeks ago, Ignatyev said the Central Bank would consider lowering the refinancing rate "as long as inflation decreases," just a week after Putin told a group of coal miners in Novokuznetsk that cutting it below 13 percent, then the inflation rate, would "destroy" the economy. The Central Bank raised rates in November to prevent speculation against the ruble, but it has since faced pressure from bankers, who argue that lending rates have grown too high. Among the most vocal has been Alfa Bank president Pyotr Aven, who predicted last month that high lending rates would push hundreds of banks into bankruptcy by the third quarter. The morning after Aven's comments, Central Bank First Deputy Chairman Alexei Ulyukayev hinted of an impending rate cut, albeit a small one. "It'll be a little step, but it's important for us to define the tendency," .