Russia’s central bank shouldn’t take steps to offset faster inflation because “monetary measures” won’t help contain price growth caused by drought and crop losses, Finance Minister Alexei Kudrin said.
“So far this inflation is caused more by drought conditions, and that’s why monetary measures won’t have a major effect,” Kudrin told reporters on a flight from Moscow to Yakutsk over the weekend. “What’s most important is not to speed up expenditures. That’s the main task, and the rest will gradually come into balance.”
Consumer-price growth may accelerate to as much as 7.5 percent this year and reach between 6 percent and 7 percent in 2011, Kudrin said. Central bank First Deputy Chairman Alexei Ulyukayev said in June that inflation may slow to below 6 percent.
Bank Rossii has cut its main interest rates 14 times since April 2009 as inflation slowed to 5.5 percent in July, the lowest level on record. It kept the refinancing rate at a record low 7.75 percent last month and plans to hold a rate meeting tomorrow. Consumer prices rose 8.8 percent in 2009.
Russia’s worst drought in half a century will cost the economy as much as 0.8 percentage point of growth this year, the Economy Ministry estimates. Record heat sparked forest fires as crops withered across Russia, prompting the government to ban grain exports until at least the end of the year.
Heat, drought and fire have hobbled agriculture, which accounts for about 4 percent of Russia’s gross domestic product, according to Moscow-based VTB Capital.
The heat wave may cost Russia about 1 percent of GDP because of the greater impact of agriculture on economic performance in the second half, Kudrin said. Even so, the economy will expand about 4 percent this year, Kudrin said, matching an earlier Economy Ministry forecast.
The benchmark refinancing rate is at an appropriate level and shouldn’t be changed in response to accelerating inflation, Kudrin said, adding that the regulator doesn’t need to “do anything special now.”
“The central bank should conduct a flexible exchange-rate policy,” Kudrin said. “As far as liquidity is concerned, it’s conducting its normal policy of accumulating on its deposit accounts the large spare resources of banks. This is its usual practice of withdrawing excess money from the market.”
The ruble will remain “approximately at the current level,” staying at about 30 against the dollar, Kudrin said.
The Economy Ministry’s updated 2010 forecasts, which predict that industrial production will gain an annual 7.6 percent, will “slightly” affect the parameters of the federal budget, Kudrin said.
While revenue may be higher than expected, the government won’t try to reduce the deficit, stockpiling the extra income to help fund planned reforms in the next three years, Kudrin said.
The government predicts a deficit of 5.4 percent of GDP this year. The budget gap is set to narrow to 3.6 percent of GDP next year, 3.1 percent in 2012 and 2.9 percent in 2013.
Russia posted a budget deficit of 5.9 percent of GDP last year, its first shortfall since 1999, as the economy contracted a record 7.9 percent. The government plans to sell assets, increase taxes on oil, natural gas extraction and some metals exports and tap bond markets to narrow the gap.
The Finance Ministry said Russia may raise 890.5 billion ($29 billion) rubles from asset sales from 2010 through 2013 to help finance the deficit, including 298 billion rubles in 2011. The ministry proposed selling stakes in companies including OAO Rosneft, the country’s largest oil producer, and Russia’s two largest lenders, OAO Sberbank and VTB Group.
Russia won’t offer stakes in large companies this year because it aims to use asset sales to help plug the deficit between 2011 and 2013, Kudrin said.
The government isn’t “apprehensive” about foreign investors taking part in the privatization program because only minority stakes will be offered, Kudrin said.
VTB’s privatization “makes sense” as long as the government retains control in Russia’s second-biggest lender, he said.
Ukraine doesn’t “yet” plan to sell debt in Russia, Kudrin said.