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Current inflation level forces Russia to lose investment competition — Central Bank chief

June 16, 19:08 UTC+3 ST. PETERSBURG
The bank's chief stresses nobody will invest in ruble assets for a long time if they are afraid that this investment will be "eaten" by prices
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© Alexander Shalgin/TASS

ST. PETERSBURG, June 16. /TASS/. Current inflation is forcing Russia to lose the competition for investment, Head of the Central Bank Elvira Nabiullina said on Thursday at the St. Petersburg International Economic Forum (SPIEF 2016).

"With this inflation rate, which might be acceptable for us, we just lose the competition for investment. Nobody will invest in ruble assets for a long time if they are afraid that this investment will be "eaten" by prices. Our investors will try to invest abroad - where everything is more predictable and where incomes does not disappear due to inflation," she said.

She noted that inflation of the level around 4% is "is not just our stubbornness, this is really necessary for the economy."

"According to estimations, inflation level higher than 4% is not an investment level. This is the level of inflation when there is virtually no long money. Now with the current inflation rate of 7.3% we are at the end of the list of all the countries in the world," Nabiullina said.

She added that in the fast-growing Asian economies inflation is twice lower than in Russia.

The key rate

Nabiulina said the growth of the budget deficit by every percentage point forces the Central Bank to keep its key interest rate by 1 percentage point higher.

"Other things being equal, the higher the deficit, the stricter the monetary policy. We even calculated - when the budget deficit rises by 1 percentage point, the rates are 1 percentage point," she said.

"The cost of budget deficit - are higher rates in the economy. The economy pays for it with a higher cost of money. We will keep higher rates in order to achieve the target inflation of 4%, if the fiscal consolidation strategy is not be built in such a way that we could ease monetary policy," she explained.

Budgetary policy

According to Nabiulina, budgetary policy should be adapted to new challenges, it needs to be predictable.

"The short-term goal is to adapt the fiscal policy to new challenges, to new level of oil prices and so on, in order to make it predictable in the long term. So that it does not raise questions of the market participants in the form of uncontrolled growth of public debt, or a possible growth of taxes, monetary financing," she said.

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