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. Last Updated: 07/27/2016

Economist Warns of Inflation

A leading Russian economist said Monday that government securities had stopped being a noninflationary way of covering the budget deficit because of high interest rates.

In April and May the state received 6.5 trillion rubles ($1.3 billion) from the market but spent 5.5 trillion rubles in interest and to buy the paper on the secondary market, said Andrei Illarionov, who heads the Economic Analysis Institute. "It means the budget deficit was covered mainly by the government, not commercial banks," he said.

But a senior Finance Ministry official said such fears were exaggerated.

"Although it was very difficult for us to pay, nothing negative has happened," said the head of the Finance Ministry's securities department, Bella Zlatkis.

T-bill yields soared to 215.28 percent at a June 13 auction of six-month paper, from 176.92 percent June 5. The yield fell back to 130.96 percent at the latest auction.