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Protracted conflict in Ukraine may weaken Russian rouble — Central Bank

June 18, 2014, 19:32 UTC+3 MOSCOW

The Bank also believes that this may cause further decline in business activity

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© ITAR-TASS/Sergei Bobylev

MOSCOW, June 18. /ITAR-TASS/. A protracted conflict in Ukraine may cause the rouble to weaken in the second half of 2014, the Central Bank said on Wednesday, June 18.

“If the resolution of the conflict in Ukraine drags on, the Russian economy may face both direct and indirect consequences,” the Bank said.

This and possible losses from dwindling trade and increased risks for the transit of Russian gas to Europe may lead to expectations of broader US and EU sanctions against Russia, which will negatively affect the outlook of international and domestic investors.

The Bank also believes that this may cause further decline in business activity and weaken the rouble in the second half of the year as demand for rouble-denominated assets decreases.

“Should this scenario materialise, the Bank of Russia will carry out an active monetary and credit policy aimed at curbing inflationary risks,” the Bank said.

It said inflation in Russia would slow down to the projected 4.5 and 4% in 2015-2016, respectively.

It expects the growth of consumer prices in 2014 to decrease to about 6%

The target indicator for inflation in 2014 was initially set at 5% The Central Banks said inflation had been spurred by unforeseen factors such as geopolitical tensions and the resulting weakening of the rouble.

Central Bank Chair Elvira Nabiullina said earlier this week that the unforeseen factors had increased inflation by 1.5%

According to the Federal Agency for State Statistics, inflation in May 2014 jumped to 7.6% from 7.3% in April, 6.9% in March and 6.2% in February.

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