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Russia Says Currency Crisis Over, But Economic Challenges Remain

Russian authorities said on Thursday that the country's currency crisis was over, but its economic problems are yet to be resolved.

The ruble has recovered sharply in response to the steps taken by Russian authorities to prevent further declines in the currency and to slow inflation. The currency slumped to record lows in the backdrop of falling oil prices.

Last week, the Bank of Russia unexpectedly raised its key rates sharply to 17 percent from 10.5 percent. The massive hike was aimed at limiting the slide in the ruble and risks to inflation.

The state-run news agency TASS on Thursday quoted the country's Finance Minister Anton Siluanov as saying that there were no reason for keeping interest rates high for long.

"As soon as we see that the market situation improves, I believe that the Central Bank will decide on changing the key rate," the finance minister said. "This will provide guidance and influence market rates, which will also fall."

This week, rating agency Standard & Poor's said it may downgrade the sovereign rating of Russia due to the rapid deterioration in monetary flexibility and the impact of the weakening economy on the financial system.

Currently, Russia has 'BBB-' rating, which is the lowest investment grade. The S&P plans to review the CreditWatch Negative placement assigned to Russia by mid-January.

In interviews given to Russian media outlets, Economy Minister Alexey Ulyukayev expressed hope that the country's rating will not be lowered. A downgrade to 'junk' would be 'irrational' as the situation is under control, he reportedly said.

Meanwhile, the finance minister told the upper house of parliament on Thursday that inflation could reach 11.5 percent or higher this year. The budget deficit could be in excess of 0.6 percent of GDP next year, he reportedly said.

The minister also said that authorities are also drafting measures to lower interest rates for systemically important sector, the TASS reported.

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