In pre-sanctions Russia, growth was expected to remain weak in 2014-2015 due to stagnant oil demand, while institutional weaknesses reflected a poor investment climate. In early 2014, markets projected growth of 1.7 percent for 2014 and 2.3 percent in 2015, with a deceleration of inflation to about 5 percent and a policy rate of 5 percent.

With sanctions in place, the Russian economy wound up contracting 3.5 percent in 2014. Even in a benign scenario, Moscow can only expect flat growth in 2015. With subdued oil prices and weak ruble, only exports are driving growth.

Despite the stalemate in Ukraine, the cease-fire may not last long. Brussels is not eager to extend further sanctions in the near term, nor will it readily remove them. Washington is a different story.

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Preparing for the 2016 election, members of Congress have proposed far tougher actions, which range from declaring Russia in breach of its obligations under the nuclear treaty (INF) to ousting Moscow from the World Trade Organization.

What about medium-term expectations? In a benign scenario, Russian growth could climb to 1.5 percent by the late 2010s and stay there until the early 2020s. That is a far cry from Russia's BRIC-style peak growth of almost 7 percent in the pre-crisis world.

In an attempt to control the currency and inflation, Russia's central bank (CBR) raised the key rate from 5.50 percent at the start of the year to 17 percent after a huge 6.5-percent hike in December. The CBR also replaced its monetary head Ksenia Yudaeva with Dmitry Tulin. While the former can now focus on increasing flexibility in forecasting and strategy, the latter will ensure tougher enforcement in monetary policy.



After CBR cut rates to 15 percent, the ruble decreased to the low 60s against the dollar. As the central bank sees a weak ruble as a better option than high interest rates, it cut rates again Friday to 14 percent and said more rate cuts will follow.