Finance Minister Alexey Kudrin (right, with Economic Development Minister Elvira Nabiullina) has often tied high state spending to high inflation.
Photo: Vasily Shaposhnikov
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Capital Outflow Won’t Lower Inflation
As of June 1, 2008, inflation had reached 8.1 percent in Russia since the beginning of the year, according to Rosstat, the state statistics service. It remains stably high even with a reduced money mass and net foreign capital outflow of $2.4 billion in that period. Inflation between June 1 and 9 was 0.42 percent. In the same period a year ago, it was 0.32 percent.
One of the main arguments that inflation will fall has been the slowing rate of growth of the money mass. Finance Minister Alexey Kudrin recently claimed that a stricter monetary and credit policy will permit the government to hold inflation down to the forecast 10.5-percent level. The Central Bank acknowledges, however, that the stricter monetary policy has been due to external market conditions. First deputy chairman of the Central Bank Alexey Ulyukaev told a State Duma committee last week that the dynamics of the money mass were “positively influenced” by the outflow of capital between January and the end of May of this year. “That result was largely due to changes in the situation with the influx of capital,” he said.
Foreign capital flows remain unstable, in spite of the fact that the Central Bank has permitted a wider range of fluctuation for the ruble and tightened up interbank loan practices. According to Bank first deputy chairman Gennady Melikyan, Capital outflow in the first five months of the year has come to $2.4 billion, compared to $61.7 billion in the same period a year ago. There was a $20-billion influx into Russia in April, where has only $2.6 billion entered Russia in May. So far there has been a net influx this month. Reserves rose $500 million between May 30 and June 6 to $549.1 billion.
The Central Bank raised the refinancing rate for the third time this year last week. Both Russian and Western economists say that that step is insufficient to change the course of prices. They say budget spending needs to be curtailed as well. The IMF has gone so far as to advise Kudrin of its views, but its advice was dismissed.
www.kommersant.com
All the Article in Russian as of June 16, 2008
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