Russia should tighten fiscal, monetary policy: IMF
Russia must tighten its monetary and fiscal stance to ensure that it brings inflation down to target, the IMF says in its annual check of the economy
While the current monetary policy is "appropriate," reducing inflation sustainably to the lower point of the target band for next year "calls for a tightening bias," the IMF said in a press release at the end of its Article IV consultations on the country.
The IMF cut its growth forecasts for the Russian economy to 2.5% this year and 3.25% in 2014 compared with forecasts of 3.4% and 3.8% respectively published earlier in the spring.
Russia aims to bring inflation down to between 5% and 6% this year and to between 4% and 5% next year from the current level of above 7%. Without policy action, the IMF expects inflation to remain above the target for next year.
Analysts expect the Russian central bank to reduce its refinancing rate by around three quarters of a percentage point from its current level of 8.25% by the end of the year.
"Monetary policy should remain geared towards achieving inflation objectives," the IMF said.
On the fiscal front, the Fund said the country's stance for this year was appropriate, but called for "more ambitious medium-term fiscal adjustment and higher savings."
"Fiscal stimulus at this time would likely be ineffective and merely intensify inflationary pressures, given that the economy is operating at full capacity," it said.
Russia adopted a new fiscal rule that limits the budget deficit to 1% of gross domestic product and links spending to the long-term average price of oil. In April, Russian Prime Minister Dmitry Medvedev said the government would consider fiscal stimulus if falling oil prices pushed the economy into recession.
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"Fiscal adjustment should focus to the extent possible on expenditure reductions and on improving the mix and efficiency of spending while preserving space for growth-friendly infrastructure programmes and critical social programmes," the IMF said.
The fund welcomed the introduction by the Russian central bank of prudential measures to offset risks from the rapid growth in unsecured consumer credit but said the regulators should also consider formal debt-service-to-income ratio ceilings and higher capital requirements for high concentration of credit risks.
Unlike in Western Europe, banks in Russia are rapidly expanding their retail lending portfolios to meet increasing demand.
The head of finance for the country's second-largest bank told Emerging Markets in a recent interview that the bank plans to increase its retail lending portfolio by 30% this year.VTB CFO Herbert Moos estimated that retail lending in Russia will grow by around 25% in 2013, and corporate lending by about 15%.
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