Russian central bank cuts key rate to 12.5% from 14%

Russia's central bank on Thursday cut its key interest rate by 1.5 percentage points to 12.5 percent, citing declining inflation risks and the need to kick-start the ailing economy.

The rate was lowered from 14 percent, "taking account of lower inflation risks and persistent risks of considerable economy cooling," the bank said in a statement.

The cut is the third this year following an emergency hike by a massive 6.5 percentage points in December to stop a sharp depreciation of the Russian currency.

Since then the ruble has recovered and the bank said it "will be ready to continue cutting the key rate" as it expects inflation to continue to abate.

The economy however slumped into recession, with the government reporting a 2.2 percent contraction in the first three months.

The central bank said current inflation stands at 16.5 percent but attributed it to "short-term factors" which include last year's ruble crash. It said that "annual inflation will slow down to less than 8 percent in a year and to the target of 4 percent in 2017."

Chief emerging markets economist for Capital Economics Neil Shearing called such figures "a little optimistic" adding that the ruble's recovery "has been built on rather shaky foundations" of stabilising crude prices.

He added that Thursday's cut is bigger than expected and likely means that the rate will fall to nine percent by the end of 2016.

Russia's economy has been hit by a myriad of shocks, including economic sanctions imposed by Western countries over Ukraine, to which Moscow has responded with an agricultural embargo that sent food prices soaring.

At the same, the halving of crude prices, Russia's main export commodity, has sent the economy into a nosedive, though the Kremlin has denied there is a crisis.