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. Last Updated: 07/27/2016

Productivity Shouldn't Fall Behind Ruble, Gref Says

A stronger ruble helps the country fight inflation, but its appreciation should not outstrip growth in labor productivity, Economic Development and Trade Minister German Gref said Tuesday.

Gref's comments reflected concern that the country may lose competitiveness as booming oil export revenues drive up incomes and fuel consumer demand. "Economic growth is becoming less balanced," Gref told the Moscow Business Dialogue conference. "Consumption is being paid for by hydrocarbon rents."

A central banker told the same conference the country could bring inflation down to 9 percent this year and that the ruble would appreciate in real terms by a similar amount. Retail prices rose by 10.9 percent in 2005. "Nine percent [inflation] is a more than attainable level," said Central Bank First Deputy Chairman Alexei Ulyukayev.

Ulyukayev said the main threat to the inflation goal was the 300 billion rubles ($11 billion) in unspent budget funds that officials may yet spend by the end of the year. He said the ruble's real effective exchange rate had risen by 8.1 percent in the first 10 months of the year.

Gref said ruble appreciation had its good side, helping contain inflation, stimulating market competition and making it easier for companies to import capital goods.

But, he added, a stronger ruble hurts growth, stimulates imports, increases the country's energy dependency and hits the profitability of exporters.

"It is clear that this process has its positive and negative sides," Gref said. "In our view, it is very important to link the tempo of appreciation of the ruble to growth in labor productivity.

"If we forecast growth in labor productivity at 4 percent to 6 percent per year, it would be desirable if the ruble appreciated at the same pace."

Gref said appreciation pressures would abate next year and predicted that the ruble would rise in real terms by around 5 percent if oil prices stay in the government's forecast range of $46 to $48 per barrel, and by 1 percent to 3 percent in later years.

Ulyukayev also said upward pressures on the ruble had eased of late, with the Central Bank finding itself in the unaccustomed roles of both buyer and seller of foreign currency.

He said the Central Bank was buying hard currency for the stabilization fund, while selling to balance out flows on the foreign exchange market.

"This rather contradictory situation is totally new for us and we will have to get used to it," he said. "From the point of view of monetary policy it means there is much less chance of our national currency appreciating."