Russian Central Bank has cut interest rates by half a percentage point (50 basis points) and has signaled further interest cuts as the economy heads to its biggest economic downturn in more than a decade.

The key interest rate was cut by 50 basis points to 5.5%, according to a statement by the central bank, the lowest level since Russia’s annexation of Crimea in 2014. This move was expected by most economists. Following the decision, the ruble went up and the yields on government bonds edged higher.

In February, the bank headed by Elvira Nabiullina cut its key interest rate by 25 basis points.

Restrictive measures taken to curb the spread of the coronavirus and the fall in oil prices have further pressured efforts to curb inflation, the central bank said after the end of today’s meeting.

The Russian Central Bank’s forecast is for average inflation between 3.8% and 4.8% this year and its stabilization in the future to about 4%.

The central bank “opens the prospect of further reducing the base rate at its forthcoming meetings”, the statement said. In developing the situation in accordance with the base forecast of the Russian Central Bank, it is possible to further reduce the leading interest rate at the upcoming meetings, said the financial institution.

The bank is forecasting an economic contraction of 4% to 6% this year and said that prices for the Russian oil Urals could reach an average price of 27 USD per barrel, about half of the expected value so far.

Earlier today was published an economic review by Deutsche Bank experts, which expected the liquidity of Russia’s National Welfare Fund to be emptied within two years if the price of Urals oil remained at 15 USD. At the end of March, the fund had liquidity of 150 billion USD, but after the government bought a stake in Sebrank from the central bank in early April, liquidity should drop to about 120 billion USD.

At 30 USD per barrel for the Urals, the funds will be in six years, Deutsche Bank experts say.

In their view, Russia’s financial buffers are generally enough to provoke a temporary oil shock. However, combined with the internal economic damage from the spread of the coronavirus, the fiscal space (a budget reserve that the government can use for certain purposes without damaging the economy’s stability) will be significantly reduced, especially if oil prices recover slowly, the experts.

On April 21, the price of the Urals in Northwest Europe dropped to 11.59 USD per barrel. This is the lowest value since March 1999, when the price dropped to 11.74 USD, according to the materials of the information company Argus Media.