Russia: Interest rates cut, further easing expected

Russia cut its key interest rate to 12.5% from 14%, in a bid to mildly boost inflation to keep up the slight build in momentum the economy has gained over the past quarter. This is the third movement by the Russian Central Bank in the past six months, beginning with the controversial and unexpected raising of rates to 17% in December to shore up the ruble. Russian authorities claim that the worst of the turmoil caused by lower oil prices and Western sanctions is over, but the RCB did claim that the economy would continue contracting until 2016, when expansion in quarterly GDP was estimated.

RCB officials and a statement by Vladimir Putin have hinted that the government is aiming for a weaker ruble, due to the substantial rally the currency has made in comparison to other currency baskets over the first quarter. This will likely decrease speculative trades where dollars and euros (whose value yields less over the short term) and exchange them for appreciating ruble assets. The RCB noted that its primary focus was to support the competitiveness of Russian industry, which at this point requires lower export costs above all else.

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News Briefs:

  • The battle of Kunduz continues in Afghanistan – Afghan security forces are engaged in house-to-house fighting attempting to expel the Taliban from the city limits. Meanwhile, 2,000 militants still maintain control of certain territories in Kunduz province, including the strategic airport location. The governor vowed to push back the rebels, but NATO and US combat troops have withdrawn, leaving the Afghan National Army fighting on its own.
  • Western leaders in the EU have called for more concrete progress against Afghan corruption, citing two layers of corruption’s influence in the country: ordinary corruption that Afghans encounter when they visit public offices, and big corruption involving issues like land disputes. President Ashraf Ghani has made good on these promises for the most part, although their execution has been lacking – since taking office, he has launched a probe into 12 fraud cases involving military logistical contracts.
  • RFE/RL has an interesting profile of NATO’s ambassador to Russia, Robert Pszczel. He said incidents of professional discourtesy in Moscow abound, especially citing his portrayal in the media, where he is consistently heckled as a Russophobe and asking to comment on Polish soldiers killed in Ukraine (hint: there are none). Since April 2014, NATO has suspended all practical cooperation with Moscow after the Kremlin annexed Crimea and since then, Pszczel has become a chief scapegoat of sorts for the Russian media.
  • Kazakhstan has suspended all poultry imports from Russia, citing an outbreak of bird flu there. This is the second food import Kazakh authorities have suspended, the first being dairy products. Kazakh authorities also banned the sales of Russian-made butter, chocolate, candies, and mayonnaise and a bulk import of wheat flour was cancelled by agricultural watchdog Rosselkhoznadzor. Media reports cite that the situation is a “trade war” between the two countries but both sides deny this.
  • A fund tied to Mongolia published a letter to shareholders that details many of the current challenges of the Mongolian economy. Much of it is focused on the formerly booming real estate market, which is targeted towards mining and other foreign executives at bringing in wealth, and establishing shopping outlets to serve the new market. They also noted that despite the current depressed state of the economy and sharp swings, the agreement between the government and the World Bank’s Multilateral Investment Guarantee Agency have signed agreements that have facilitated the insurance of copper mining play Oyu Tolgoi for up to fifteen years, which they say, guarantees growth.
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