UPDATE 3-Russia cuts rates; minister sees deeper recession

* Russia cuts key rate by 50 bps effective April 24

* Says move enabled by lower inflation, plans more to come

* Economy ministry cuts economic forecasts sharply

* Rouble, stocks strengthen

(Adds Ulyukayev interview, VTB comment, Econ Min, recasts)

By Yelena Fabrichnaya and Dasha Korsunskaya

MOSCOW, April 23 (Reuters) - Russia’s central bank on Thursday unveiled what is likely to be the first in a series of interest rate cuts and a minister acknowledged recession could strike much deeper than the government has previously forecast.

Some 1.8 million Russians have lost their jobs in the first three months of the year in a recession that raises the risk of social unrest and presents a major challenge for Russia’s rulers after years of fast growth fuelled by oil wealth.

The 50 basis point cut to key rates, an attempt to support the economy through its deepest crisis in a decade by making commercial loans cheaper, was in line with expectations.

But it came slightly sooner than forecast -- most analysts polled by Reuters on Wednesday said the move would come in early May. [ID:nLM944546]

“We believe that we are in a downward trend on inflation and that gives us the basis for lowering interest rates,” the central bank’s first deputy chief Alexei Ulyukayev told Reuters.

“If the macroeconomic situation is favourable, we will continue (to cut rates),” he added.

Just a day after Prime Minister Vladimir Putin said slowing inflation could allow rate cuts, the central bank said it would lower the key refinancing rate to 12.5 percent from 13.0 percent from April 24, and cut the minimum one-day repo rate to 9.5 percent from 10.0. [ID:nLM493897]

After the announcement, deputy economy minister Andrei Klepach said the Russian economy likely shrank a much sharper than expected 9.5 percent in the first quarter and the International Monetary Fund’s forecast for a 2009 Russian GDP contraction of 6 percent was “quite realistic”.

The ministry now expects the economy will contract 8.7 percent to 10 percent in the second quarter, Klepach said. It had previously forecast 7 percent contraction in the first three months of 2009, and just 2.2 percent for the whole of this year.

Falling global demand and oil prices are pushing Russia into its first recession since the 1998 sovereign default. Combined with the drying up of the global credit market, this has left many companies struggling to refinance foreign debt.

“It (the rate cut) will have a practical meaning from the point of view of making loans cheaper for the non-financial sector. We hope that banks will retranslate the signal into a reduction of their lending rates,” Ulyukayev said.

Andrei Kostin, the chief executive of Russia's second largest bank VTB VTBR.MM said the reduction in official rates would cut VTB's own borrowing costs as state-controlled VTB itself is increasingly financed by the state [ID:nLN303365].

However, Klepach said of the rate cut: “For it to change the situation with loans, the lowering of the refinancing rate must be significant. My personal view -- several percentage points at least, though the central bank ... will not do this.”

The Russian rouble strengthened by around 0.8 percent versus a euro-dollar basket to 38.21 roubles RUS=MCX. The benchmark RTS index .IRTS extended gains after the rate cut announcement to trade up 4.6 percent by 1342 GMT.


Analysts expect the refinancing rate will come down to 11 percent by the end of the year, according to the Reuters poll.

Rory McFarquhar, senior economist at Goldman Sachs, noted the proximity of the rate cut to Wednesday’s comments from Putin on inflation. “An unfortunate episode, dispelling any semblance of central bank independence,” he wrote in a research note.

“In the past, the central bank has resisted pressure from Putin on exchange rate policy, but rarely has the ‘jawboning’ been quite as direct as yesterday.”

The central bank, which does not pre-announce the dates of its rate-setting meetings, also said on Thursday it would delay a planned rise in mandatory reserve requirements.

“None of the measures announced today are aggressive ... (However) we see scope for further gradual interest rate cuts, barring major adverse surprises on inflation,” said Zsolt Papp, chief economist at KBC.

-- For the Ulyukayev INTERVIEW please click on [ID:nLN832]

-- For a FACTBOX on Russian interest rates see [ID:nRURATES] (Writing by Toni Vorobyova, Editing by Ruth Pitchford)