Russia set to lower key rate this year

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: Russia’s central bank will probably cut its key interest rate a further half a point this year to a record low as the regulator tries to goad banks to lend more and to stem ruble gains that threaten an export recovery.

Bank Rossii, which has reduced rates eight times in the past six months, may lower the refinancing rate a quarter point to 9.25% this month, according to the median estimate of nine economists surveyed by Bloomberg. The rate may fall to 9% by the end of the year, the survey showed. The bank, which doesn’t publish a timetable for rate meetings, began relaxing policy on April 24 for the first time since 2007.

“We still have some room for additional easing of our policy rate,” Bank Rossii First Deputy Chairman Alexei Ulyukayev said in an interview last week. Last month, he said the refinancing rate may be lower than 9%next year.

The bank last month cut the rate half a point in part to reduce the “attractiveness of short-term investments” and “stop the accumulation of risk” in the world’s biggest energy exporter. Prime Minister Vladimir Putin has said he won’t allow the ruble to strengthen excessively as exporters, reeling from a lack of credit, struggle to tap into a global trade recovery. Previous rate cuts have failed to ease lending, stalling business investment and hiring.

Lenders’ corporate loan books shrank 0.7% in September from August, while lending to consumers fell 1.1% in the same period, the central bank said. The ratio of non-performing loans climbed in the period to 6.4% from 6.2%, according to central bank data.

Economic backdrop

Bank Rossii has lowered the rate from 13% in April after the economy contracted at a record pace, culminating in a 10.9% slump in the second quarter. Russia’s worst recession since the 1998 default and falling wages have eased consumer-price growth to the slowest in more than two years.

The annual inflation rate fell to 9.7% in October, the Federal Statistics Service said. That compares with 14.2% a year earlier, and an average inflation rate of more than 14% in the decade through 2008.

“Inflation is likely to be single-digit in 2009 and the central bank may cut rates again this year by another 50 basis points,” Aleksandra Evtifyeva and Dmitri Fedotkin, economists at VTB Capital in Moscow, said in a report.

Steering currency