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. Last Updated: 07/27/2016

Rising Cash Demand Seen as Key

The Central Bank has pinned its hopes for an inflation slowdown on the rising demand for money in the booming economy, despite record money supply growth, according to a policy document released Monday.

The bank forecast that money supply might grow by more than 39 percent in 2007, above the initial forecast of 32 percent to 34 percent, if capital inflows continue for the rest of the year. But the strong economy may absorb excess liquidity.

"If money supply corresponds to an increased demand for money, the inflation slowdown may continue," the bank said in its monetary policy guidelines.

Growth in money supply, the key factor behind the country's high inflation rates, reached 48.8 percent in 2006 as a result of record high international prices for the country's oil and gas. Money supply grew by 60 percent year on year in the first five months of 2007.

"If there is a stronger impact from such factors as capital inflows and economic growth, annual [money supply] growth may reach higher levels [than 39 percent]," the bank said.

The Central Bank said it had bought $93.1 billion in the period from January to May, 77 percent more than in the same period last year, while net private capital inflows reached $60 billion as Russian firms raised funds on international markets.

The bank said foreign currency purchases remained the main factor behind high monetary growth, but that 2007 had also seen a 49.4 percent year-on-year increase in loans to businesses and individuals. The bank said loans to individuals increased by 73.1 percent on June 1, while loans to businesses were up 44.6 percent compared with one year earlier.