CBR cuts rates again as Finance Minister calls end to recession

The Central Bank of Russia has cut the refinancing rate by 50 basis points to 10%, as the Finance Minister said Russia is now emerging from recession.

Answering questions from the federation council on Tuesday, Kudrin said Russia is currently in a prelude to increased investment activity, adding that many of the budget adjustments adopted earlier this year are likely to kick in within the next few weeks.

"One could say today that Russia has exited the recession and it is also possible to say that we are today going through a certain juncture after which investment activity will start to increase,"

The move by the Central Bank, in cutting the refinancing rate for the 7th time this year, is also aimed at promoting growth, with CBR Deputy CEO Aleksey Ulyukaev saying the threat of inflation is now starting to diminish.

“We have seen zero consumer price inflation for the past two month. Wec are looking at full year inflation of 11.2 percent – a large value, but smaller than the last two years and this years official forecast. We think that inflation is coming under control and its downward trend is obvious.”

Speaking with Business RT major economists said that the economic road ahead remains unclear. Vladimir Osakovsky, Chief economist at Unicredit believes real signs of growth are still some way off.

“Russia’s exit from the recession is only based on the first part of this year. I believe that we won’t be able to see any real growth until next year.”

His counterpart at Alfa Bank, Natalya Orlova noted that although continued decline in GDP is no longer likely, it is still likely there will be individual months with little or no growth.

“I believe there will still be quarters, not necessarily in a row, that will see no growth or even may see a decline.”

The Finance Minister noted that Russia’s response to the economic downturn and global financial crisis had seen the state take on a larger share of the economy. But he made clear that the State will be looking to reduce this over the longer term.

“Almost half of the Russian economy is state-controlled or part of a state company. It means that one of our key goals for the next several years is to reduce the share of the government in business.

It may happen that this year, or even in 2010, we will need to increase the governments role in the economy and some companies to provide further anti crisis support, but in the mid term we plan to exit where we can. Without that, we will not create the necessary competitive and innovative environment which will diversify our economy.”