Russia Central Bank optimistic on inflation, capital flows

ST PETERSBURG : Russia's central bank remains optimistic that inflation will come in at no more than 7 percent this year

Published June 17, 2011 Updated June 17, 2011 08:16am

3 min

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By Syed Murtaza Gheblehzadeh

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In May, annual inflation stood at 9.6 percent, but weekly inflation has been easing recently and in the week to June 14 consumer prices remained unchanged - the first such reading since May of last year.

The central bank is also betting on a good harvest this year and an abundant supply of seasonal fruit and vegetables to push foodstuff prices lower in coming months.

"We haven't changed our forecast, we expect that we'll be able to meet 7 percent (inflation) by the end of the year," the bank's First Deputy Chairman Alexei Ulyukayev told reporters on the sidelines of the St. Petersburg International Economic Forum.

Ulyukayev reiterated that inflation in June is likely to come to 0.4 percent, month-on-month, and said that consumer prices should not rise more than 1.8 percent in the second half of the year.

"Monetary factors pushed inflation higher in the first quarter, now they're easing," Ulyukayev said.

The broad money supply indicator M2, key in forecasting inflation as it is used to quantify the amount of money in circulation, rose 24.5 percent in annual terms last month, easing from 26.7 percent seen a month earlier.

Ulyukayev also said that the rouble's rapid appreciation at the beginning of the year is slowing.

"Our participation in the internal (forex) market has been gradually declining," Ulyukayev said. "In June, it will be probably smaller than in May."

He said that the central bank has bought $2 billion so far this month in the market, smoothing the rouble's exchange rate.

In May, the regulator bought a total of $3.9 billion and 0.4 billion euros in the forex market.

The central bank believes the capital flight that Russia has seen this year is easing and 2012 should see a reversal of the trend.

Around $55 billion has left the country in the past eight months, but Ulyukayev said that by the end of 2011 Russia should see no more than $35 billion in net capital outflows, while next year inflows of around $10 billion-$15 billion are likely.

"There are three scenarios for the next year, depending on market environment," he said. "According to our moderate scenario, there should be small inflows of $10 billion-$15 billion."

President Dmitry Medvedev's administration has blamed corruption and poor investment climate for the outflows, but economists and investors say it is the political uncertainty ahead of Russia's presidential election.

Presidential elections are due to take place next March and neither Medvedev nor Prime Minister Vladimir Putin have officially declared their candidacy.

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