Cbanker: Russia’s annual inflation may exceed 7% in June

MOSCOW, Jun 10 (PRIME) -- Russia’s inflation may temporarily exceed 7% in annual terms in June, central bank Chairwoman Elvira Nabiullina said at a news conference Friday.

“Inflation may temporarily exceed the bank of Russia’s forecast of less than 7% made for one year in a statement in June 2015, but after that, the growth dynamics of consumer prices will continue to fall, mainly due to restrictions from the point of view of demand,” she said.

The regulator is sure that it will be able to reach the inflation target of 4% by 2017 even if inflationary risks come true. There will be no significant influence from the ruble rate on inflation in the short term and there are also no factors for significant volatility of the ruble in the foreseeable future, she said.

She also said that Russia’s budget rule should be developed in such a way that will make it unnecessary for the bank of Russia to intervene on the currency market, as the bank has no plans to influence in the exchange rate.

The Russian economy is stabilizing, inflation and economic development are better than expected. Still, a gradual improvement of the economy will not lead to higher inflation. Inflationary risks persist, and the regulator will have to stick to a tough monetary policy if they come true, she said.

Still, the Friday cut of the key rate to 10.5% from 11% does not mean easing of the monetary policy, as the regulator’s actions depend on the economic situation, and now the central bank is not ready to launch the cycle of easing of its policy, she said.

The difference between the key rate and inflation should stand at 2.5–3 percentage points, but now the central bank has to keep it a bit higher in order to stabilize inflationary expectations and to reach a consistent level of inflation, she said.

Understanding the dynamics of budget deficit for next three years is important, and the regulator supports the Finance Ministry’s decision to cut deficit by 1 percentage point per year, she said.

She also said that net capital outflow from Russia will not exceed U.S. $25–30 billion per year in 2016–2018. The external debt is falling gradually, and there are no risks for the country’s payment balance, she said.

The regulator has included the oil price of $40 per barrel for 2016–2018 and an average annual oil price of $38 for 2016 in its adjusted baseline scenario, as excessive supply on the oil market will persist. The risk economic scenario may also come true, and the regulator studies this possibility under the oil price of $25, Nabiullina said.

Under the baseline development scenario, the central bank does not plan to purchase foreign currency to replenish its foreign exchange and gold reserves until the end of 2018, but it will depend on the market situation, she said.

Still, Russia’s foreign exchange and gold reserves should increase by $22 billion by 2018 due to redemption of foreign currency–denominated debts of banks to the central bank, she added.

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