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. Last Updated: 07/27/2016

Government May Allow Strong Ruble

Itar-TassKudrin, German Gref and Alexander Zhukov at a Cabinet meeting Monday
The government may allow the ruble to strengthen more than forecast this year to help curb inflation, Finance Minister Alexei Kudrin said Monday.

It may allow the real effective rate of the ruble to rise by 5 percent or 6 percent against a basket of currencies if oil prices and capital inflow exceed forecasts, Kudrin told State Duma deputies. The government is currently targeting a 4 percent gain in the ruble.

Allowing the ruble to strengthen more than planned may be needed to ensure that the government meets its inflation forecast of 8 percent for 2007, Kudrin said.

The MICEX dropped as much as 1.2 percent to 1606.34 following Kudrin's comments. The index later closed up 0.4 percent at 1632.46.

A stronger ruble hurts domestic energy companies, which have ruble-denominated expenses and receive their revenues in foreign currency, analysts said.

The country's economy will probably expand 6.5 percent this year, with oil prices expected to reach an average of $55 a barrel, according to government forecasts.

Planned future increases in domestic prices for gas, power and rail road shipments "increase inflationary risks" over the next three years, Andrei Klepach, head of the Economic Development and Trade Ministry's forecasting department said during Monday's Duma hearings.

Electricity rates will increase 12 percent to 13 percent each year by 2010, when the country's power industry will become fully liberalized, said Valery Goreglyad, an auditor with the Audit Chamber.

Domestic prices for natural gas will increase between 25 percent and 27 percent in each of the following three years, Goreglyad said during the Duma hearings. Rail shipment prices will increase 8 percent to 11 percent through 2010, he said.

"We still live in conditions of an unpredictable economy, where everything depends on oil prices," Goreglyad said. This makes economic forecasting beyond the current year difficult, he said.

Crude oil for June delivery rose 20 cents, or 0.3 percent, to $62.57 per barrel Monday morning on the New York Mercantile Exchange. Futures touched $63.07, the highest since May 4. Prices are 13 percent lower than a year ago.