AFP - The Russian Central Bank on Thursday agreed a half-point cut in its benchmark refinancing rate to 9.5 percent, the lowest level in Russia's modern history, in a bid to stimulate the economy.

The cut, effective from Friday, was agreed "with the aim of additionally stimulating credit activity in the banking sector of the economy," the Central Bank said in a statement.

The refinancing rate stood at 10 percent between June 2007 and February 2008 but this is the first time in Russia's post-Soviet history it has been cut below the 10 percent level.

The Central Bank has been progressively cutting interest rates since April in a bid to offset the severe impact of the global economic crisis on Russia and as the threat of inflation eases and the ruble appreciates.

It said that inflation had been zero in the first three weeks of October compared to the previous month and that over the past 12 months consumer prices had risen 9.9 percent, a rate much lower than that of the pre-crisis years.

Industrial production -- hit hard by the economic crisis -- was also showing positive changes although the real sector of the economy remained in need of credit, the bank added.

The Bank left the door open for further interest rate cuts, saying that any further steps would be determined by trends in inflation, production and credit activity.

Since the start of the easing cycle in April, the Central Bank has now cut rates eight times from a peak of 13 percent.

Russia, whose economy is still hugely dependent on energy exports, was badly hit by the crisis after enjoying years of strong growth and President Dmitry Medvedev has said the economy will shrink 7.5 percent this year.

The government led by strongman Prime Minister Vladimir Putin has kept a wary eye on the situation, keen that the economic troubles do not spill over into wider social unrest.

Officials have declared that the worst of the crisis is now over, with Finance Minister Alexei Kudrin declaring at the weekend that the Russian economy was now "out of recession."

But the recovery remains fragile and analysts said policymakers were still worried about the lack of credit available to help finance the recovery.

"One of the key arguments for the Central Bank to cut rates are the still-tight lending conditions in the economy," analysts at Renaissance Capital said in a note to clients.

"Although there are some clear signs of a lending recovery, the government wants it to become a more sustainable trend," Renaissance Capital said.

The main Russian interest rates were still much higher than global rates and the Bank's policy was still "relatively restricted," it said, forecasting cuts amounting to at least another percentage point by the end of the year.

Economists say Russia has been helped by the recovery in oil prices from last year's lows but warn too little has been done to diversify the economy and say the country remains vulnerable to fluctuations in the price of crude.

Hawk Sunshine, head of investment banking at the Metropol investment firm, said Russia shared the problem of several other big economies of "the lack of money reaching small and medium sized enterprises."

"In order for us to get out of this crisis, governments have to make sure there is not just money in the system, but that it is being deployed," he said.