Russia should refrain from easing monetary policy as economic growth is in line with its potential and inflation exceeds the central bank’s target range, the International Monetary Fund said.
The IMF’s base scenario is that the economy will grow at about its estimated potential of 3.75 percent this year and in the medium term, Odd Per Brekk, the Washington-based lender’s resident representative, told reporters today in Moscow. That compares with Prime Minister Dmitry Medvedev’s target of 5 percent.
The government has urged policy makers to ease monetary policy after economic growth slowed to 3.4 percent last year, the weakest since a 2009 recession. Bank Rossii may cut rates if the pace of price increases slows, Chairman Sergey Ignatiev, whose third and final term ends in June, told lawmakers today. The inflation rate was 7.1 percent in January, jumping from 6.6 percent the previous month.
“The short-term policy issue is to keep monetary policy on hold, but with a tightening bias,” Brekk said. “Policy shouldn’t spur domestic demand so that economy exceeds its capacity because the main effect will be inflation.”
The ruble traded at 30.0705 per dollar at 3:20 p.m. in Moscow, compared with 30.0760 yesterday. It has strengthened 1.5 percent this year, the eighth-best performance among more than 20 emerging-market currencies tracked by Bloomberg.
Inflation will be 6 percent this year and next after last year’s average consumer price index of 5.1 percent if monetary and fiscal policies remain unchanged, according to the IMF. The central bank aims to keep price growth at 4 percent to 5 percent next year.
The government’s goal of 5 percent economic growth is achievable if “productive investment” increases, which may push the expansion to as much as 6 percent, according to Brekk.
The IMF recommends tighter fiscal policy, a move to a flexible exchange rate and inflation targeting by the central bank, developing and stabilizing the financial industry and improving the investment climate, Brekk said.
Russia should set “more a ambitious fiscal-tightening goal for this year” than its plan to cut the non-oil budget deficit by 0.5 percent of gross domestic product, Brekk said. The “non- oil deficit remains very high, it’s about 10 percent of GDP.”
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