Central Banker Hints at Ruble Appreciation

The Central Bank is ready for monetary tightening as capital inflows into the country have resumed and price growth has accelerated, first deputy chairman Alexei Ulyukayev said Thursday.

Ulyukayev, who chairs the bank's monetary policy committee, said the Central Bank might soon raise its interest rates but did not rule out ruble appreciation and a rise of mandatory reserve requirements.

"Our No. 1 tool is the interest rates. ... We will work with them, not ruling out possibilities of using exchange rate policy as well as mandatory reserve requirements," Ulyukayev told reporters.

His comments on the exchange rate policy signaled a change in the Central Bank's stance on the ruble following a resumption of capital inflows and the easing of domestic liquidity-crunch fears.

Inflation hit 6 percent in the year to April 21, adding further pressure on the Central Bank to rein in consumer price growth. Ulyukayev said he was confident that the country was still capable of achieving single-digit inflation in 2008.

He said that last year the Central Bank had ceased to view exchange rate policy as an effective weapon against inflation amid a shrinking balance of payments surplus, net private capital outflows and the liquidity squeeze.

As capital inflows resumed, gold and foreign exchange reserves have reached $519 billion with the Central Bank intervening in the forex market and buying about $10 billion in April.

"We saw a change in capital movement trends in the end of last month, in April it was even more obvious, one can say there was net capital inflow in April," Ulyukayev said.

The Central Bank raised all of its rates by 25 basis points in February to curb money supply growth.

The Central Bank bought almost as many dollars in April as it did in the first quarter of the year as it tried to check the ruble's appreciation against its currency basket, Ulyukayev said.

The bank purchased more than $10 billion this month, Ulyukayev said, Interfax reported. That compares with $12 billion bought by the bank from the market in the first three months of 2008.