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. Last Updated: 07/27/2016

Inflation Seen Over Government Target

COOLUM, Australia -- The government will not meet its inflation target this year, Deputy Finance Minister Sergei Storchak said Wednesday.

"Inflation once again will exceed 8 percent," Storchak told reporters at a meeting of finance ministers from the 21-member Asia Pacific Economic Cooperation forum in Coolum, Australia.

Russia has an annual inflation target of 8 percent this year and has struggled to bring the rate down to West European levels as revenue from oil and gas sales drive economic growth and wages. Inflation was 9 percent in 2006. The Central Bank may need to allow the ruble to appreciate more than planned to slow inflation.

"They are going to need to let the ruble appreciate," said Al Breach, head of research at UBS bank. Allowing the ruble to strengthen is the Central Bank's most effective monetary policy tool, he said.

The ruble's real effective exchange rate will probably rise between 8 percent and 9 percent this year, more than the Central Bank's forecast, Breach said. The ruble may increase up to 5 percent this year, Central Bank chairman Sergei Ignatyev told the State Duma on July 4.

Breach dismissed concerns that the strengthening of the ruble will hurt manufacturers, making their products less competitive than imports. UBS expects year-end inflation at 8.5 percent in 2007.

"The economy is growing very strongly, manufacturing is growing very strongly," Breach said. "There is no Dutch disease."

The economy will grow 7.3 percent this year, beating an earlier forecast of around 6 percent, because of booming investment and oil revenues, Storchak said.