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Russia aims to cut inflation in 2003
By Darya Korsunskaya
MOSCOW, Aug 14 (Reuters) - A major goal of Russian economic policy next year will be curbing inflation, the government said on Wednesday.
"One of the main goals (for 2003) is cutting the level of inflation to 9-10 percent, maximum 12 percent," Prime Minister Mikhail Kasyanov told a cabinet meeting.
"This is one of the most important goals not only for the central bank, for the government as well."
He reiterated the government's hope that inflation this year would be 14 percent. Consumer prices rose 9.8 percent in the first seven months of the year.
Economic Development and Trade Minister German Gref said recent industrial production data showed Russia had been doing better than expected and that the figures would probably prompt the government to revise its gross domestic product growth forecast for the year.
"Yesterday we received Goskomstat (state statistics committee) data on industrial output growth. In July it amounted to 1.2 percent as compared with June, which surpasses optimistic forecasts made earlier," Gref told reporters.
"Today in the evening we shall receive the final result on the structure of industry. Most likely it will add 0.1 percent to the year 2002, meaning that GDP growth forecast will be increased to 3.9 percent."
INFLATION-FIGHTING WEAPONS
The Ministry for Economic Development and Trade said in material prepared for the cabinet meeting that gas and electricity prices would be no more than 20 percent and 14 percent respectively in 2003, when parliamentary elections are due.
This compares to a 35 percent increase in both gas and electricity prices allowed by the government for this year.
"This price rise will keep domestic gas deliveries from being loss-making in 2003, encourage independent producers to raise output and stimulate the development of a competitive gas market," the ministry said on the government website www.pravitelstvo.gov.ru.
Kasyanov said the central bank should also focus on strengthening the regulation of the money supply next year with the help of interest rates and open market operations.
"This will allow financial market players to use interest rates rather than the (rouble/dollar) rate as guidance," he said.
The central bank's main instrument for regulating money supply and market liquidity is intervention in the foreign exchange market. However, it has recently started pushing its interest rates closer to market levels, trying to make them an instrument of its monetary policy.
The central bank has to soak up the increase in money supply that results from the fact that it prints roubles to cover revenues from Russia's booming oil and gas exports.
Central Bank Chairman Sergei Ignatyev said the central bank would keep a watchful eye on the monetary base so as to curtail inflation and that monetary growth in 2002 would shrink to 28 percent from 40 percent in 2001.
"This is a good basis for cutting 2003 inflation which we see at 10-12 percent. The central bank as its main goal for the next three years sees pushing inflation down to below eight percent a year," Ignatyev told reporters.
"By controlling the monetary base, the central bank indirectly controls the money supply, which has a direct impact on inflation."
Kasyanov also said the floating rouble rate should correspond to the country's level of economic development, referring to the government's efforts to keep the rouble low enough to help producers remain competitive.
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