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. Last Updated: 07/27/2016

Slow Circulation Lowers Inflation

Inflation has fallen this year because of a decline in the rate of circulation of money rather than a decline in the money supply itself, a top economist said Monday.

Andrei Illarionov of the Institute for Economic Analysis told reporters that the volume of money in Russia had increased by two to three times the rate of inflation this year. This would ordinarily bring about massive inflation.

The rate of circulation of money in the economy, however, has more than halved from a value of 12 at the end of 1993 to an average of 5.4 this year.

Illarionov attributed the decline in the rate of circulation to the attractiveness of returns offered by bank deposits and securities. The Central Bank's refinancing rate is currently 130 percent.

He warned, however, that Russia could face an explosion in inflation from its current monthly level of four percent if returns on securities and deposits decline.