Russian Inflation Rate Bottomed Out at 3.7%, Ulyukayev Says

Russian inflation probably won’t fall below February’s record low as the central bank tries to check price growth at 6 percent this year, said Alexei Ulyukayev, a Bank Rossii first deputy chairman.

Consumer-price growth may remain near last month’s 3.7 percent in the “near future” and accelerate from that level in the second half amid utility-tariff increases and risks of a growing money supply, Ulyukayev said in an interview with Interfax published today. The comments were confirmed by the central bank’s press service.

Bank Rossii has refrained from selling foreign currency in February and March, leading to a “moderate monetary emission” of the Russian currency, while the government’s loosening fiscal stance also results in more rubles, Ulyukayev said.

“We’re seeing additional monetary pressure, but it’s not extreme or even something unusual,” he said. “Still, it’s something we need to watch, it’s a risk. These two conditions will, possibly, be a source of upward pressure on the consumer price index.”

The world’s largest energy exporter is trying to curb inflation near the lowest level since the Soviet Union collapsed two decades ago even as Prime Minister and President-elect Vladimir Putin seeks growth rates to match Brazil, India and China. The budget deficit reached 3 percent of gross domestic product through February, according to preliminary Finance Ministry data.

Monetary and fiscal policy under the new government will need to rely on growth based on investment using domestic savings rather than foreign capital, Ulyukayev said.

‘Tighter Fiscal Policy’

“The growth model, in my opinion, should be based more on domestic savings and converting that into investment rather than on attracting foreign investment,” Ulyukayev said. “That will require both continuing to follow a monetary policy of inflation targeting, controlling inflation, and also tighter fiscal policy.”

The ruble gained against the dollar for a fourth day, strengthening 0.3 percent at 29.2720 at 6:03 p.m. in Moscow. The Micex Index (VTBMICX) of 30 stocks fell, declining 1 percent to 1,610.85.

The currency may strengthen further against the central bank’s basket of dollars and euros as foreign investors return to Russia once Putin, who won a six-year term in the Kremlin in the March 4 presidential election, forms a new government, Ulyukayev said.

New Government

“The situation in Russia from an investment standpoint will gradually improve,” Ulyukayev said. “In May and June I think it will be better than in April” as the new government is formed after Putin’s inauguration in May.

The Micex Index has risen 15 percent so far this year as the national currency strengthened and demand for ruble- denominated state debt pushed yields to record lows. Even so, net private capital outflows continued into this year and may have totaled $22.5 billion through February, Ulyukayev said yesterday.

Net capital flight surged to $84.2 billion last year, the second highest total since the central bank began keeping records in 1994.

To contact the reporter on this story: Scott Rose in Moscow at rrose10@bloomberg.net

To contact the editor responsible for this story: Alan Crosby at acrosby1@bloomberg.net

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