Templates by BIGtheme NET
Home » Finance » Russian central bank: We will meet inflation target
Russian central bank We will meet inflation target

Russian central bank: We will meet inflation target

ST PETERSBURG: Russia’s central bank is determined to meet its inflation target and will have to keep interest rates high unless the government cuts its budget deficit, Governor Elvira Nabiullina said at the St Petersburg International Economic Forum on Thursday.

Her comments highlight doubts that Russia will be able to implement the tougher fiscal policies it has promised in response to low global oil prices, with negative consequences for inflation.

The central bank cut its main policy rate last week for the first time in almost a year, but is at pains to show it is not going soft on its goal of reducing inflation to 4 percent by the end of 2017.

“Inflation at 4 percent isn’t stubbornness – it’s a necessity for our economy,” Nabiullina said.

“At the moment, few people believe that we will reach 4 percent inflation (in 2017), and for us this is a challenge,” she said, citing research indicating that both analysts and the public believe inflation will be 7-8 percent next year.

Nabiullina said one reason for high inflation expectations was the government’s policy of injecting roubles into the economy by running a budget deficit. The central bank has to counteract that by absorbing liquidity or maintaining high interest rates.

According to central bank calculations, every percentage point rise in the budget deficit as a share of gross domestic product requires interest rates to be one percentage point higher than they would otherwise have been, she said.

“We will maintain high interest rates to achieve the goal of 4 percent (inflation) if budget consolidation isn’t carried out in a way that enables us to soften monetary policy,” she said.

This year, the government is aiming for a deficit of 3 percent of GDP.

Finance Minister Anton Siluanov, speaking at the same forum, reiterated a pledge to cut the deficit by the equivalent of one percent of GDP each year, leading to a balanced budget by 2019.

As well as cutting the deficit, Russia also needs to increase domestic borrowing to limit the draining of fiscal reserves, he said.

“The Reserve Fund needs to be preserved,” Siluanov said. “Therefore in the next three years we will reduce spending from the Reserve Fund, leaving a security buffer.”

The Reserve Fund stood at $39 billion last month, down from $88 billion at the start of 2015.

Details of how the Finance Ministry plans to balance the budget remain vague.

Many analysts doubt that unpopular measures will be implemented before a presidential election in March 2018, which incumbent Vladimir Putin is expected to contest.

The central bank has repeatedly warned about what it calls “the lack of mid-term budget consolidation strategy”, arguing that this is adding to risks that its inflation target will be missed.

Copyright Reuters, 2016

Courtesy : BRecorder



Share On Facebook
Share On Twitter
Share On Google Plus
Share On Linkdin
Contact us
Please Like Facebook Fan Page
By Liking facebook Page you are Updated about Latest Videos & News