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. Last Updated: 07/27/2016

Kudrin: Inflation Target at Risk

The government may have trouble reaching its inflation target next year if international prices for oil, the country's main export, stay at current levels, Finance Minister Alexei Kudrin said Monday.

The government is aiming for 10 percent to 12 percent annual consumer price inflation this year. Analysts forecast the target will be missed despite upbeat comments from the government. CPI for the first seven months of the year was 8.7 percent.

For 2004, the government budgeted an 8 percent to 10 percent CPI target. Kudrin said he saw no problems attaining that if the price for Urals blend crude stayed at $22 per barrel, the figure on which the draft budget had been calculated.

"But if this year's situation with oil persists, we shall have problems," Kudrin told reporters, referring to higher than expected crude prices.

He said Urals crude had been trading at about $26 to $27 per barrel so far this year, while the 2003 budget had been calculated on the basis of a price of $21.5 per barrel.

But he reiterated that this year's consumer price target would be fulfilled.

High oil prices mean exporters, who are obliged to deposit half of their dollar earnings at home in rubles, put the Central Bank in a position of having to print more local currency in order to absorb the extra influx of dollars. The government has few instruments with which to sterilize money supply as the country's financial markets and banking system are relatively undeveloped.

"There are a number of measures [to sterilize money supply]: for instance, to carry out additional domestic borrowing and to stop foreign borrowing," Kudrin said.

"But even in this case there will be no sterilization as such. It could even stimulate the inflow of capital into the country," he said.

Higher hard currency and capital inflows into the country translate into the ruble firming in real terms. Kudrin said the Finance Ministry was against an artificial weakening of the national currency.

"Strengthening of the ruble and the balance of payments is inevitable for the Russian economy," he said.

"We expect that an [annual] firming of the ruble of 2 percent to 4 percent is inevitable."

First Deputy Central Bank Chairman Oleg Vyugin said Monday that consumer price inflation was likely to stay unchanged for August in month-on-month terms.

"I think August inflation will come in at about zero," Vyugin said.

July CPI this year stood at 0.7 percent and at 0.1 percent in August last year.

Consumer price growth tends to slow in August and September, when prices for fruit and vegetables go down.