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. Last Updated: 07/27/2016

Central Bank Predicts Ruble Appreciation Slower in 2007

The ruble will appreciate slightly less quickly in 2007 than last year provided oil prices stay at current levels, Central Bank Chairman Sergei Ignatyev said Friday.

"With international prices for oil staying at their first quarter levels, the ruble may appreciate by 4 percent to 5 percent in real effective terms," Ignatyev told a banking conference Friday.

The real effective exchange rate, or REER, of the ruble is calculated using nominal exchange rates and inflation levels in Russia and its trading partners.

The appreciation hurts producers and makes domestic industries less competitive. The ruble appreciated by 7.4 percent in real effective terms in 2006.

Ignatyev said the ruble has appreciated by 2.6 percent in the first quarter of 2007 compared with 6.2 percent in the same period of 2006. The Central Bank is under pressure from the industrial lobby to stop the ruble's appreciation.

"We do not expect money supply growth in 2006 to lead to higher inflation in 2007," Ignatyev said. M2 money supply grew 49 percent last year.

The country is running a huge current account surplus due to high oil prices, and resulting foreign currency inflows create appreciation pressure on the ruble. The government forecasts oil prices will stabilize and the current account surplus will shrink.

The average annual price for Urals, Russia's main export blend of oil, is expected to fall to $55 per barrel in 2007 from $61 per barrel in 2006.

The Central Bank allowed the ruble to appreciate in nominal terms against the basket in measured moves throughout 2006 and at the start of 2007 as it fought inflation by making imports cheaper. Consumer prices grew by 3.4 percent in the first quarter of 2007 compared with 5.0 percent in the same period of 2006, making further nominal appreciation of the ruble against the basket less likely.