Nov. 10 (Bloomberg) -- Russia’s central bank will probably cut its key interest rate a further half a point this year to a record low as the regulator tries to goad banks to lend more and to stem ruble gains that threaten an export recovery.

Bank Rossii, which has reduced rates eight times in the past six months, may lower the refinancing rate a quarter point to 9.25 percent this month, according to the median estimate of nine economists surveyed by Bloomberg. The rate may fall to 9 percent by the end of the year, the survey showed. The bank, which doesn’t publish a timetable for rate meetings, began relaxing policy on April 24 for the first time since 2007.

“We still have some room for additional easing of our policy rate,” Bank Rossii First Deputy Chairman Alexei Ulyukayev said in an interview last week. Last month, he said the refinancing rate may be lower than 9 percent next year.

The bank last month cut the rate half a point in part to reduce the “attractiveness of short-term investments” and “stop the accumulation of risk” in the world’s biggest energy exporter.

Impact Limited

Prime Minister Vladimir Putin has said he won’t allow the ruble to strengthen excessively as exporters, reeling from a lack of credit, struggle to tap into a global trade recovery. Previous rate cuts have failed to ease lending, stalling business investment and hiring.

Russia is the only member of the four so-called BRIC nations still cutting rates. India last lowered its reverse repo and repo rates in April, China reduced its lending rate in December and Brazil hasn’t cut its overnight rate since July.

The central bank “will continue lowering its policy rate in the near future to facilitate credit to the real sector,” the World Bank said in a report released today. “But the impact, however, appears to be limited -- the policy rates are mostly indicative, while the cost of credit remains very high.”

Lenders’ corporate loan books shrank 0.7 percent in September from August, while lending to consumers fell 1.1 percent in the same period, the central bank said on Nov. 2. The ratio of non-performing loans climbed in the period to 6.4 percent from 6.2 percent, according to central bank data.

The average interest rate charged by Russian banks for corporate loans was at 14.5 percent in September, down from 15.1 percent a month earlier, Bank Rossii said on Oct. 22.

Lending Activities

“In the environment of increasing credit risks, lending activities by the banks have remained limited despite improving liquidity conditions in the economy and continuing monetary loosening,” the World Bank said.

Bank Rossii has lowered the rate from 13 percent in April after the economy contracted at a record pace, culminating in a 10.9 percent slump in the second quarter. Russia’s worst recession since the 1998 default and falling wages have eased consumer-price growth to the slowest in more than two years.

The annual inflation rate fell to 9.7 percent in October, the Federal Statistics Service said on Nov. 3. That compares with 14.2 percent a year earlier, and an average inflation rate of more than 14 percent in the decade through 2008.

“Inflation is likely to be single-digit in 2009 and the central bank may cut rates again this year by another 50 basis points,” Aleksandra Evtifyeva and Dmitri Fedotkin, economists at VTB Capital in Moscow, said in a report.

Consumer-price growth will be “a little more” than 8 percent this year, Putin said on Oct. 25, the slowest annual average pace on record. That marks a reversal for Russia, which is haunted by inflation rates in excess of 100 percent after its 1998 default and more than 1,000 percent after it abandoned central planning for market prices in the early 1990s.

First Warning

Bank Rossii on Oct. 29 said it will use rates to steer the currency, marking the first explicit warning it will use tools beyond currency transactions to stem capital flows that threaten an economic recovery.

The bank bought more than $11 billion of currency last month, Ulyukayev said on Oct. 23. The nation’s currency reserves, the world’s third-biggest stockpile, rose to $432.8 billion as of Oct. 30, the highest this year.

An 80 percent rebound in the price of Urals crude, Russia’s main export blend, since the start of the year is helping a recovery as the government taps into the windfall revenue to finance its budget gap, the first in a decade, and keep stimulus measures in place.

‘Fluctuations’

Rising prices for commodities have also boosted the ruble to the highest level this year. The currency strengthened 3.5 percent against the dollar in October, the second consecutive monthly gain.

The ruble may trade around 36 against its target dollar- euro basket by the end of November and weaken to 38 by the end of the year, according to the median estimate in the survey.

“For now, at least, the prospects for the ruble are inherently tied to fluctuations in the oil price, Neil Shearing, emerging markets economist at Capital Economics in London, said in a report. “The best of the ruble rally has probably passed. While commodity prices may hover around their current levels for the next three months or so, we expect them to fall back over the course of next year as the pace of global recovery starts to fade.”

A weaker currency would lead the central bank to reverse its rate cuts and tighten liquidity, Shearing said.

The ruble was little changed at 28.7295 per dollar at 12:58 p.m. in Moscow today, reaching 35.1831 against the target basket, the strongest since Dec. 25.

Policy Pledges

Policy makers, including President Dmitry Medvedev, have pledged to wean the economy off its commodity reliance and steer Russia toward more sustainable expansion. The central bank wants to shift its policy focus to an inflation target by 2011.

The government expects the economy to contract 6.8 percent in the second half and 8.5 percent in 2009. Output will return to growth of 1.6 percent next year and 3 percent in 2011, the government estimates.

The yield on Russia’s benchmark 11.9 percent ruble notes maturing in 2012 fell 360 basis points since June to a low of 8.37 percent on Oct. 20. The bonds are yielding 8.54 percent today, down 4 basis points from yesterday. Bond yields move inversely to prices.

To contact the reporter on this story: Paul Abelsky in Moscow at pabelsky@bloomberg.net.

Last Updated: November 10, 2009 05:24 EST