Russia will be able to meet its 2007 inflation targets this year because rising imports will offset record capital inflows, Economy Minister German Gref said today.
Mr Gref told reporters on the sidelines of the St Petersburg International Economic Forum that peoples' increasing tendency to save had slowed the circulation of money, thus helping to offset unprecedented capital inflows into Russia.
"I don't see yet any serious reason to revise the previously set targets, mainly because of the higher pace in imports growth ... I see no reason for serious concerns," Mr Gref said.
Russia was forced to revise its 2007 capital inflows forecast to $70 billion from an initial $30-$40 billion after $60 billion entered in the first five months of the year alone, partly because of record corporate borrowing from the West. The World Bank called on Russia this week to allow more flexibility in the rouble's nominal exchange rate to fend off inflationary pressures caused by capital inflows. It also said it believed the government would find it difficult to cut inflation to its target of 8 percent this year from 9 per cent last year.
The central bank runs a managed float of the rouble using a dollar/euro currency basket as a guide for its forex interventions and uses the rouble exchange rate as its most powerful tool against inflation. The Kremlin is keen to keep inflation below last year's figure to showcase the success of its economic policies ahead of parliamentary and presidential elections this and next year.
But it cannot allow the rouble to become too strong as it would ruin the competitiveness of Russia's top exporting industries. Russia's trade surplus narrowed to $38.3 billion in January-April from $49 billion in the same period last year, with imports rising to $59.8 billion from $42.4 billion.