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WorldPosted at: Jun 16 2016 2:17PM


Russian central bank vows to meet inflation target, warns on deficit

ST PETERSBURG, Russia, Jun 16 (Reuters) Russia's central bank is determined to meet its inflation target and will have to keep interest rates high unless the government cuts its budget deficit, Governor Elvira Nabiullina said at the St Petersburg International Economic Forum on Thursday.The central bank last week cut its main policy rate for the first time in almost a year, but is at pains to show it isn't going soft on its goal of reducing inflation to 4 percent by the end of 2017."Inflation at 4 percent isn't stubbornness - it's a necessity for our economy," Nabiullina said."At the moment few people believe that we will reach 4 percent inflation in 2017, and for us this is a challenge," she said, citing research showing that both analysts and the public believe inflation will be 7-8 percent next year.She said one reason for high inflation expectations was the government's policy of injecting roubles into the economy by running a budget deficit. The central bank has to counteract that by absorbing liquidity or maintaining high interest rates.According to central bank calculations, every percentage point of the budget deficit as a share of gross domestic product requires interest rates to be one percentage point higher than they would otherwise have been, she said."We will maintain high interest rates to achieve the goal of 4 percent inflation if budget consolidation isn't carried out in a way that enables us to soften monetary policy," she said.

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