Russia sees strong rouble

STRASBOURG: Russia has no need of a tighter monetary policy thanks to fading inflationary risks and a stronger rouble which can firm on the back of a strong current account surplus, the Deputy Economy Minister said on Sunday.

"We do not assume there is a need to raise rates. There are no factors (in place) for acceleration in inflation," Andrei Klepach said on the sidelines of the Russian Economic and Financial forum in Strasbourg.

The central bank will meet on interest rates on June 30 and is widely expected to leave the policy unchanged after it said last month "an acceptable balance" between inflation and economic growth had been found.

Klepach reiterated Russia will meet its full-year inflation target of below 7.5 percent due to a seasonal decline in prices for vegetables and fruits, unless there is another global wave of a rise in food prices.

Since the start of the year, consumer prices have risen by around 5 percent, challenging the central bank's more optimistic forecast for 6-7 percent inflation in 2011.

Inflation remains the main concern among Russians ahead of parliamentary elections in December and presidential elections in March 2012, in which President Dmitry Medvedev and Prime Minister Vladimir Putin could run.

The rouble has strong upside potential despite heavy net capital outflows, Klepach said.

"In the course of increasing rouble flexibility pledged by the central bank, and given the current account, the rouble's potential to firm is great, despite capital account dynamics," Klepach told the forum.

Boosted by rallying oil prices, the rouble has this year firmed 8 percent versus the dollar and could have gained more if not for net capital outflow of more than $50 billion in the past seven months.

Russians, apparently, are behind the leakage. Uncertainty over who will be elected president in 2012, high levels of rouble liquidity and yields lower than in recent years, are factors that could be prompting outflows.

Klepach said 2011 net capital flow balance could be "slightly negative"

Russia, the world's top oil exporter, has been enjoying a rapid recovery in oil prices towards pre-crisis inflows. It had a surplus of $31.8 billion in the first quarter.

Maintaining a solid surplus, however, will require higher revenue, which implies higher oil prices, as the stronger rouble spurs imports that eat away the surplus.

"The current account surplus may entirely shrink by 2014", Klepach said, adding current policies could contribute to such a development.

"I think it poses risks. The budget policy, forex policy are inclined to support the economy's growth and do not really match each other."

Copyright Reuters, 2011