The bank said in a statement that the refinancing rate, tripled from 50% a week ago, would be reduced along with Lombard credit rates, which will also be set at 60%.

Executives said the move was "in view of the normalisation of financial markets."

The sharp rate cut comes amid growing confidence on Russian markets that the government may have weathered the storm that has lashed the financial system in recent weeks, heaping huge pressure on the ruble.

Confidence returned to Russia's battered financial markets on Wednesday.

After a week in which share prices have tumbled, the battered RTS index finished up 8.47% at 209.7, after rising 10% on Tuesday. The rouble also strengthened, up 3 kopecks to $6.151, helped by government overnight interest rates that reached 150%.

Russian Finance Minister Mikhail Zadornov said that the government was not seeking additional aid from the G7.

Deputy finance ministers from the major industrial countries are due to meet early next week to discuss the Russian financial crisis.

And in another sign of confidence, Prime Minister Sergei Kiriyenko went ahead with his official visit to France, while President Yeltsin is scheduled to visit Germany in the next few days.

Dealers have been moving back into government bonds

The growing optimism was reflected on the government bond market, where the short-term bills found ready takers in the market. Last week, 40% of government bonds went unsold as investors feared a sudden devaluation of the rouble.

The Russian Government appears confident that funds from the IMF and the private banking sector will flow into the country.

The IMF is scheduled to release the next $670m payment of its $9.2bn aid package to Russia later this month.

The evident concern of US officials has also spurred optimism. On Tuesday, US Treasury Secretary Robert Rubin said that there was a "substantial" risk of contagion from Russia "that can spread to central Europe and that can then spread further."