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. Last Updated: 07/27/2016

Vyugin Chides CB Ruble Policy

VedomostiOleg Vyugin
LONDON -- The Central Bank is "not in a position" to combat the strengthening of the ruble because it may stoke inflation, said Oleg Vyugin, a former first deputy chairman of the Central Bank and now head of the Federal Service for Financial Markets.

"The strengthening of the ruble is a result of high oil prices and the surplus in the balance of payments," said Vyugin in an interview last week. The "bank is not in a position to fight such fundamental economic tendencies."

Accelerating inflation threatens to tarnish the economic successes of President Vladimir Putin's five years in administration, which has boosted living standards and fostered economic growth. Inflation remained above the 10 percent target last year as the Central Bank sought to prevent the ruble rising too much against the euro and dollar and hurting exporters.

The Central Bank controls the exchange rate by buying and selling the currency on the local market. Printing rubles to buy dollars swells the money supply and may drive up inflation.

In April 2004, the Central Bank decided to target both inflation and the exchange rate and "as a result, inflation control was lost," Vyugin said. "I hope that now the Central Bank is trying to be on track with the normal way to target inflation. It is impossible to target both inflation and the real exchange rate."

Russia's currency has been appreciating against the dollar for the past two years, advancing almost 14 percent since 2002.

It is "too early" to say economic growth has slowed, Vyugin said. Growth was a preliminary 7.1 percent in 2004, down from 7.3 percent in 2003.

"It is too early to say that the Russian economy is slowing down," he said.

"It is very difficult to harm the robust growth of the economy which is continuing after the 1998 crisis."

n Morgan Stanley cut its forecast for the ruble against the dollar at the end of 2005 to 29 from 27.30, the bank said in a report.

"Although rising inflation is becoming a bigger political issue, we don't expect the exchange rate constraint to be relaxed in a major way," Riccardo Barbieri, Morgan Stanley's chief emerging markets economist, wrote in a note published last week.

"Given higher domestic inflation and a stronger dollar, we no longer see the ruble posting significant gains this year."