UPDATE: Cbank: CPI close to 4% target, but expectations still high

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MOSCOW, May 15 (PRIME) -- Russia’s consumer price inflation index (CPI) is close to a 4% target set by the central bank, but inflationary expectations remain high albeit falling, Igor Dmitriyev, director of the department for monetary and credit policies, said on Monday.

“Inflation is decelerating and is indeed close to the target. Perhaps, we could have said inflation is close to the target had we lived for a second or a third year close to 4%, at 4.1%. Because inflation will never be exactly 4%. Things will always happen, it can be higher or lower,” he told a meeting of the council of the Association of Regional Banks of Russia.

According to a report released by the Economic Development Ministry, consumer price growth can shrink to 2.9% at the end of 2017 if the ruble remains stable for the entire period. “If the ruble weakens in accordance with the base forecast of the Economic Development Ministry, inflation is expected at 3.8% year-on-year at the end of the year.”

Dmitriyev said that the central bank will not revise its forecast for 2017 inflation significantly. An early attainment of the target poses no threat to financial stability.

The central bank’s policies must remain strict nevertheless, he said, because inflationary expectations are high. “Take inflationary expectations. 11% is a historical minimum and this is, in general, quite good. It is good that it is below inflation that we see. In people’s opinion, inflation amounts to 13.8% but they expect it to fall.”

The target has been reached to a great degree thanks to factors which can change, “Firstly, this is the exchange rate dynamics… There is appetite for risk for the emerging markets, and Russia has gained from it, but in principle, as the U.S. rates will rise, other economies are recovering, the situation can reverse and maybe, in general the risk premium for Russia will grow,” Dmitriyev said.

Dmitriyev suggested a discussion of the scope of inflation deviations from the target, which is to be considered acceptable to set the brackets to guide the central bank’s monetary policies.

The central bank has postponed plans to replenish the foreign currency reserves to U.S. $500 billion due to inflation instability, he said.

The authority might not need to issue bonds in 2017 because it does not expect a large liquidity surplus, he said.

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