17 Sep 2009 11:41

Russian govt and CB forecast inflation in 2010 at 9%-10, 2011

MOSCOW. Sept 17 (Interfax) - The Russian government and the Central Bank have assigned a task to lower inflation in 2010 to 9%-10%, in 2011 - to 7%-8% and in 2012 - to 5%-7% (on a December-to-December calculation), according to a draft of the main points of Russia's monetary policy for 2010-2012, which has been seen by Interfax.

The goal for inflation rates on the consumer market is in accordance with base inflation for 2010 at 8.5%-9.5%, in 2011 - 6.5$-7.5% and 4.5$-6.5%, the document said.

"In the upcoming period, the Bank of Russia will strengthen efforts to keep inflation to its recent downward trajectory. In order to reduce inflation, the CB will employ all monetary policy instruments at its disposal," the document said.

In 2010-2012 the CB proposes fully creating the conditions for applying inflation targeting and moving to a free floating rate for the ruble. The expansion of the bi-currency basket's corridor in January has allowed the CB to reduce its intervention in the domestic forex market significantly. The trend for the ruble's rate is largely determined by fundamental macroeconomic factors. In choosing its currency policy, the CB will employ forex reserves and keep them at the level necessary for a positive estimate of Russia's long-term financial solvency.

The reduction in the CB's interventions within the domestic forex market would have a substantial impact on Russia's international reserves while reducing the influence of net foreign assets on the growth of monetary supply. Regulatory institutions hold these assets.

In order to secure a balance between money supply and demand, the CB will continue actively to refinance banks. This will allow for a more effective control of money supply while also enhancing the role of the CB's interest rate policy on reducing inflation, as well as forming monetary conditions for the economic efficiency and the inflation expectations of economic agents.

The success of the CB's monetary policy hinges on a conservative budget policy and also improving the equalization of budget expenditures, the document said.

In addition, the CB intends to lower rates on its own operations as long as inflation trends continue to show a decrease. The CB's rates on the main instruments for bank refinancing will have a more substantial influence on interest rate trends on the money market.