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. Last Updated: 07/27/2016

Ruble Appreciation Policy Reviewed

MTUlyukayev, left, and Shokhin sharing a joke during the Moscow Business Dialogue conference that was held Tuesday.
In a sign that the Central Bank will shift its attention more seriously to battling inflation, a senior bank official said Tuesday that it might back off on its policy of preventing the ruble from appreciating.

Central Bank First Deputy Chairman Alexei Ulyukayev said Tuesday that the reduction in the volume of rubles printed in an attempt to hold the value of the ruble down would likely occur over the space of three to five years.

"We will buy less and less foreign currency, and we will issue fewer rubles to purchase that foreign currency," Ulyukayev told a business seminar in Moscow chaired by Alexander Shokhin, president of the Russian Union of Industrialists and Entrepreneurs.

He ruled out, however, allowing the ruble to appreciate significantly this year in order to battle inflation.

Ulyukayev said the Central Bank intended to accelerate plans for a program targeting inflation, which would mean allowing greater flexibility in the ruble's movement. He said the national currency was likely to strengthen by 5 percent in 2007.

In order to prevent huge export revenues generated by high world energy prices from pushing up the ruble's value precipitously, the Central Bank has been "printing" rubles to keep the currency relatively stable against the dollar and the euro. This has contributed to inflation, causing concern in the government that rising prices could be an issue ahead of State Duma and presidential polls.

The Central Bank has resisted allowing the ruble to rise, arguing that it would attract speculative investment on the currency, canceling out some of its value in reducing inflation. There is also the concern that a stronger ruble would price exporters out of foreign markets.

Oleg Vyugin, chairman of MDM Bank and former head of the Federal Service for Financial Markets, said the Central Bank's ruble policy was too conservative.

"If the Central Bank pursues a controlled policy, it will result in a devaluation," Vyugin said. "We need to move away from [the view] that a strong national currency would kill the economy. We must let go of these myths and move toward a more flexible system."

Ulyukayev repeated earlier government forecasts that inflation would outstrip original projections, predicting that it would reach 10 to 11 percent this year.

The government has acknowledged that soaring food prices have been one of the key drivers behind overall inflation rates. Food products account for roughly 40 percent of the consumer price index.

Among the measures to put a brake on inflation and boost the spending power of poorer sections of the population is a plan to cut import tariffs on vegetable oils and some vegetables, while keeping the price of bread down by raising export tariffs on grain.

The government has also urged food producers and wholesalers into voluntarily freezing prices on "socially significant" products, such as vegetable oil and milk, until Jan. 31.

David Yakobashvili, chairman of dairy producer Wimm-Bill-Dann, said at the same conference that food producers might extend the existing agreement beyond January. "This will be temporary," he said. "We cannot keep prices at a lower level [long term]."