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. Last Updated: 07/27/2016

Ignatyev Eases Up Over Fiscal Policy

Itar-TassTatyana Paramonova, first deputy head of the Central Bank, speaking at a banking conference in Moscow on Friday.
Room exists for a cautious easing of federal budget policy after years of fiscal prudence and for some of the country's massive oil wealth to be invested in the economy, the chairman of the Central Bank said Friday.

Sergei Ignatyev also told reporters that the bank had no immediate plans to change the U.S. dollar share in the country's foreign exchange reserves, currently around 50 percent.

Russia's Central Bank has built up the world's third-largest gold and foreign exchange reserves -- $338.7 billion as of March 30 -- to curb appreciation pressures on the ruble. Its dollar purchases reached $118 billion last year.

The $108 billion oil stabilization fund, which cushions the budget from slumps in oil prices, is counted as part of the reserves. The government plans to split the stabilization fund into a reserve fund and a fund for future generations next year.

Ignatyev said the Central Bank had backed the government's first three-year budget, designed to help the country through the 2007-2008 election period.

The proposed budget, which sees surpluses disappear by 2010, will go to the State Duma this month. Ignatyev said he saw the possibility of a softer budget policy.

"In principle we can now soften the budget policy and lower taxes," Ignatyev said.

But he also called for caution and moderation. "If we increase expenditure, we should understand we do it for good reason."

Ignatyev also spoke in favor of the idea of investing some of the country's oil wealth into the economy through development institutions, since the need to sterilize petrodollar inflows was no longer acute.

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

"I do not exclude the possibility of the government placing some of its accumulated resources in development institutions," Ignatyev said.

The government plans to boost growth, pumping money into sectors outside oil and gas through development institutions such as the investment and venture funds as well as the Development Bank, to be created this year.

Vladimir Dmitriyev, head of Russia's debt and pension fund manager Vneshekonombank, which will be used as a platform for the new Development Bank, said the new investment vehicle could issue loans worth up to $15.5 billion next year.

"We believe the bank will be created in the middle of the year," Dmitriyev told reporters.

Ignatyev said the bank would not change the composition of the reserves.

"There are no serious reasons to do it," he said. He added that he did not see significant changes in the dollar's role as the world's reserve currency in the medium term.

The bank had earlier said that about 40 percent of its reserves was kept in euros and about 10 percent in sterling. It also has a small holding in yen and Swiss francs.