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Low inflation, macroeconomic stability not enough for investment growth - CBR head

June 30, 2016, 5:18 UTC+3

"Inflation as it is would not step up a gear of the investment growth and we are aware of this," Elvira Nabiullina said

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MOSCOW, June 30. /TASS/. Low inflation and macroeconomic stability are not enough for investment growth, Russia’s Central Bank head Elvira Nabiullina has said in an interview with the Vedomosti daily.

"Inflation as it is would not step up a gear of the investment growth and we are aware of this," Nabiullina said. "Macroeconomic stability and low inflation are not sufficient for this but they are a required condition, which is an insufficient but required (condition) for a sustainable economic growth."

"When someone suggests - well, loosen a bit your wish to curb inflation, let it stand at 5-7%, but not at 4%, then the economic growth will be 0.5% up - in my opinion, it is a very dangerous proposal," she said. "So the next year the inflation will climb to 7-9% from 5-7% and in the following year, we should face the 11% inflation so as to keep the 0.5% growth, etc. Along with this, the inflation will be higher but influence on the growth will be lower. This is a way to enter an inflationary spiral."

"However, if we want to stimulate the economic growth for just one year in this way, the effect will be short-lived and we will have to get back to addressing the actual causes of a low growth," Nabiullina said.

Besides, Nabiullina said that the Central Bank did not see a threat of deflation, although it could not rule out that deflation risks might emerge in Russia in the future.

"There are still more inflation risks. But one can suppose that in a few years deflation risks may emerge, which will be probably caused by the very strong rouble or rapidly slowing economic growth (for instance, due to external factors)," she said. "And the Central Bank’s goal will be to keep inflation at the target level. The goal is more ambitious than in industrialized countries with their 2% (inflation) and the 4% threshold has been chosen far from accidentally as the economy with such a ratio of prices as we have needs this level for adapting to ongoing changes.".

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