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. Last Updated: 07/27/2016

Central Bank Wary On Rates

BUENOS AIRES -- The Central Bank will exercise caution in its interest rate policy, concerned that any tightening may exacerbate already huge capital inflows, the bank's chairman, Sergei Ignatyev, said Monday.

"We are very cautious here and are closely monitoring interest rates on international markets," Ignatyev told a policy seminar in Buenos Aires hosted by Argentina's central bank.

Ignatyev also said the Central Bank would consider "very carefully" allowing the ruble to rise further if prices for oil remained around current levels.

Confronted by a flood of oil export revenues, the Central Bank has sought to defend a stable nominal exchange for the ruble, building up its international reserves to over $400 billion in the process. Last year's lifting of capital controls has strained its policy framework, with the stock market float of No.2 bank VTB and auctions of the assets of Yukos piling on the pressure.

The Central Bank targets a stable exchange rate for the ruble against a currency basket comprising 55 cents and 45 euro cents. It has allowed the ruble to rise once this year against the target basket, by around 0.7 percent, and speculation is growing that a further step-up revaluation will be needed to help meet this year's 8 percent inflation target.

Ignatyev appeared to give credence to those expectations by saying trade surplus would disappear by 2010 if the nominal effective exchange rate of the ruble held steady and oil prices remained around recent levels.

"In principle there is nothing wrong with this, but this will force us to consider very carefully the possibility of further nominal appreciation of the ruble," he said.