Russia kept its interest rate steady on Friday but announced it wouldn't rule out tightening monetary policy if inflation risks rise, after a month in which the ruble dropped to record lows as oil prices deteriorated.
January marked a difficult month for the Russian economy, which saw its currency decline in near lockstep with the falling oil price, sending the ruble to fresh record lows of 85 rubles per dollar last week.
The ruble was trading near 75 to the U.S. dollar after the central bank's first monetary policy decision of 2016.
Elvira Nabiullina, chairman of Russia's central bank.
Andrey Rudakov | Bloomberg | Getty Images
Elvira Nabiullina, chairman of Russia's central bank.
"It seems pretty clear that policymakers have been spooked by the latest fall in oil prices and the ruble, which has caused the inflation outlook to deteriorate," William Jackson, a senior emerging markets economist with Capital Economics told CNBC via email.
It was also the first time the central bank warned it may not be able to hit its inflation target by 2017, Jackson highlighted.
Russian inflation did retreat from 15 percent in December to 12.9 percent, but the headline rate is still far cry from the central bank's 4 percent inflation target.
"It's clearly difficult to predict interest rates in an environment where oil price movements make a significant contribution to the inflation outlook. Given the weakness of the economy it would probably take quite a lot to actually force the MPC (monetary policy committee) to raise rates," Jackson added.
"Our sense is that, so long as inflation continues edges down and oil prices and the ruble stabilize, there may still be some room for rate cuts. But in so far as these do happen, they will come much later in the year, and be relatively small," he said.
Interest rates have come down significantly since being hiked to 17 percent in December 2014, though today's decision still leaves the bank off its November 2014 level of 10.5 percent.