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. Last Updated: 07/27/2016

IMF: Tame Inflation, Not the Strength of the Ruble

WASHINGTON -- The International Monetary Fund on Friday urged Russia to tighten fiscal policy by next year and focus monetary policy on taming inflation rather than on reining in the ruble currency.

"Directors generally agreed that, to achieve the authorities' macroeconomic objectives, monetary policy will need to give higher priority to reducing core inflation in order to avoid the risk of entrenching inflationary expectations," the Washington-based lender said in its annual review of the Russian economy.

The IMF sees Russian consumer prices rising 13.4 percent in 2003 and real gross domestic product growing 4 percent. Consumer prices surged 16 percent last year while the economy expanded 4.3 percent.

Authorities must be prepared to deal with increases in the money supply caused by foreign-exchange intervention and accept greater exchange-rate flexibility, the IMF said.

"A few directors nevertheless saw a continuing need for efforts to slow the pace of real ruble appreciation," the IMF said, adding some other IMF directors were concerned that recent cuts in short-term Russian interest rates could risk fueling inflation.

The IMF said it welcomed Russian interest in preparing for the adoption of inflation targeting "when the conditions for making this transition ... are in place."

The Central Bank wants to contain the ruble's rise against the dollar and euro basket to under 6 percent this year. Under pressure from local industry, which says the strong currency makes it less competitive, the bank has recently been containing the ruble at 31.1 to the dollar.

"Directors urged the authorities to resist calls to spend the windfall gains from high oil prices and called for a tightening of fiscal policy in 2004," the IMF said.

They also "underlined that the further reduction in tax rates for 2004 and beyond decided by the authorities recently would loosen the fiscal stance unduly."

It said authorities should make sure if offsets these tax cuts with measures to broaden the revenue base or reduce spending.

The lender said efforts at structural reform had flagged recently and said they should be reinvigorated.

"Key areas of reform include the public administration, the civil service, the judiciary, natural monopolies and housing and communal services," the IMF said.

It said these, along with trade reforms being conducted as Russia works to join the World Trade Organization, should "result in a significant strengthening of governance and the rule of law and a reduction of distortions in the economy."