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. Last Updated: 07/27/2016

Borrowing Increased To Pin Back Inflation

The government announced Monday that it had raised its 2007 domestic borrowing program by 100 billion rubles ($3.88 billion) as part of measures to curb inflation to its annual target of 8 percent.

The government said it would raise the offering of OFZ treasury bonds in 2007 to 315 billion rubles from an earlier planned 225 billion rubles.

Issuance of GSO state saving bonds, a nontradable instrument aimed at pension funds, will increase to 90 billion rubles from 80 billion rubles, it said.

In 2006, Russia issued 186 billion rubles of OFZs and 52.4 billion rubles of GSOs.

Russia is seeking 8 percent inflation in 2007, but consumer prices have already risen by 6.8 percent from the start of the year to the end of the first week of August.

To curb inflation, the Central Bank has let the ruble appreciate against the dollar and euro currency basket it targets, and raised its short-term deposit rates by one-quarter percentage point.

The bank's first deputy chairman, Alexei Ulyukayev, has said the bank will refrain from further ruble appreciation in 2007 to protect domestic industry, which is suffering losses because of the strong currency.

He also said the bank would instead look at raising offering of its own OBR bills and might auction OFZ bonds from its portfolio in order to keep inflation within the target.

Analysts said the increase in OFZ offering also aimed to fight inflation as the government runs a budget surplus and therefore has no need to finance its spending through borrowing.

"OFZ is the most effective anti-inflation tool in terms of draining excess liquidity," said Nikolai Podguzov, analyst at Renaissance Capital, pointing at traditionally strong investor demand for the state bonds.