Russia's central bank on Friday cut its main interest rate to 14 percent from 15 percent as it juggled the need to resuscitate its crisis-hit economy against fears of rising inflation.
The rate cut is the second since the start of the year after a mammoth increase in December that came as authorities scrambled to put a lid on economic turmoil sparked by Western sanctions over Ukraine and tumbling oil prices.
The bank said in a statement that it had "decided to reduce the key rate from 15 to 14 percent per annum taking into account that the balance of risks is still shifted towards a more significant cooling of the economy."
It said the reduction was not enough to pose "an additional threat of increased inflationary pressure."
The bank said that it would be prepared to consider further cuts if the risk of inflation falls.
"We will take a decision depending on the economic situation as a whole -- both with inflation and the key macroeoconomic indicators," central bank head Elvira Nabiullina said, adding that a strategy that focused only on cutting inflation would be "short-sighted."
The central bank predicted GDP would contract by 3.5 to 4 percent in 2015, based on average oil price of $50 to $55 per barrel.
The economic slump will reach its lowest point in early 2016, Nabiullina predicted.
- 'More easing ahead' -
The central bank suggested inflation would fall to 12-14 percent by the end of 2015 from its current rate of around 17 percent. Its goal is inflation of 4 percent in 2017.
It said high inflation was mainly caused by Western trade sanctions and the ruble depreciation which it said were "short-term" factors whose impact would burn out this year.
Russia last cut its key rate to 15 percent from 17 percent on January 30 in a surprise move that sent the ruble tumbling. In December it had jacked up the rate from 10.5 percent to 17 percent, widely seen as untenably high.
Nabiullina said this had encouraged Russians to hold onto ruble savings, however, adding the currency is "undervalued by around 10 percent."
The hard-hit ruble, which has stabilised in recent weeks along with oil prices, rose slightly on the news, standing at 61.09 against the dollar and 64.64 against the euro early afternoon Friday, after reaching 61.81 against the dollar and 65.35 against the euro earlier in the day.
Analysts said the rate cut had been expected and was relatively conservative, while predicting further cuts.
"The decision was in line with consensus and our own expectations," Capital Economics said in a comment.
"Barring a renewed collapse in oil prices, a few more interest rate cuts look likely."
"Overall, the CBR took a balanced step," ING bank's Russia & CIS chief economist Dmitry Polevoy said in a research note, adding the move signalled "there is more easing ahead."
"We maintain our expectation for the key policy rate to be reduced towards 11.0 percent by the year-end and 8.5 percent by mid-2016, but see risks to faster policy easing," said Vladimir Kolychev, an analyst at VTB Capital.