Russia central bank cuts rates to hold down ruble

The decision to cut the key refinancing rate by half a point with effect from Wednesday "was taken to increase access to loans by economic entities and to stimulate final demand," the bank said in a statement.

It also reduces "the difference between rates in Russia and rates abroad" and therefore "contains the strengthening of the ruble."

A stronger ruble makes Russian exports -- such as the hydrocarbons on which it heavily relies -- more expensive for holders of other currencies and therefore deters buyers.

The Russian currency has risen strongly this year in line with higher oil prices. It has also been driven up by speculative investments by traders who buy rubles using foreign currency that they borrow at lower rates.

The Ria Novosti news agency cited the economic development ministry as saying that the ruble had strengthened by up to 2.7 percent against the dollar from January to November.

On Tuesday the exchange rate of reference for the ruble, based on a "basket" of the euro and dollar, stood at 35.27 rubles.

Tuesday's announcement was the ninth Russian rate cut in a row since April. At the end of October, the rate had been reduced to below 10.0 percent for the first time ever.

Industrial production in Russia shrank in October by more than 11 percent compared to the corresponding month last year, according to the federal statistic agency Rosstat. It rose by 0.8 percent compared to September however.

The 12-month figure reflected the deep slump that has hit Russian manufacturing in the global economic crisis, prompting fears of social instability.

"Banks' lending activity remains weak and domestic demand is still insufficient to guarantee stable growth of industrial production," the bank said in Tuesday's statement explaining the rate cut.

Prime Minister Vladimir Putin said Saturday that the Russian economy would contract between 8.0-8.5 percent in 2009, although officials have also said the country began to emerge from its harsh downturn in the third quarter.

Russia's economy shrank in October by a massive 8.1 percent compared to the same month a year ago, according to government data reported on Monday, but the rate of contraction eased.

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