MOSCOW - Russia's central bank said on Tuesday it would cut its key refinancing rate to 21 percent from 23 percent from August 7, in line with its new strategy of regulating money supply through rates.

Commercial banks do not usually borrow from the central bank, but the rate is used as reference rate in commercial lending and on the state debt market.

The last time the central bank changed the rate was on April 8, when it cut it from 25 percent.

Until relatively recently, Russia's central bank had tended to regulate money supply through intervention.

But the new administration, which took over in March, pledged that the central bank would become the focal point for setting rates and regulating money supply within a year.

The central bank wants its instruments and rates to become the benchmarks for commercial banks. "They are showing that they are ready to make the refinancing rate a clearer instrument," said Troika Dialog analyst Andrei Ivanov.

Renaissance Capital analyst Alexei Moiseyev said the rate cut was in itself a positive move, but that to be a realistic market instrument it would have to move still lower.

"The rate at the level it is at now does not have any meaning," he said. "We can say that an effective rate should be around 13-14 percent annually."

"But on the other hand, it should be high enough to attract commercial bank deposits to the central bank," he added.

The refinancing rate, which in a normal economy is a key tool in regulating liquidity, stopped being effective after the 1998 economic crisis. Since then, the market in government paper has been minuscule, with yields too low to soak up much funds.

It is chiefly an indicative yield cap for state rouble debt and a base for calculating some fines and penalties.

The central bank also cut several deposit rates in June, making it less attractive for commercial banks to park loose roubles with the central bank.