IMF points to Russia inflation risks

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The International Monetary Fund on Monday said inflation in Russia and other former Soviet republics posed the greatest challenge to the region's projected five percent growth this year.

The IMF said higher food prices made up to a half of each country's "inflation basket" and urged the region's states to edge up interest rates to help cap rising consumer prices.

It also noted that private sector demand would remain weak in Russia over the short term due to the after-effects of the 2008-2009 global banking crisis.

"Given steady increases in non-food prices and unfavourable inflation prospects, an increase in policy interest rates would help prevent a wage-price spiral," the IMF said in its April 2011 World Economic Outlook report.

It added that headline inflation was likely to "substantially increase" and this year reach 9.3 percent in Russia and 9.6 percent in the region as a whole.

Russia in February raised its main refinancing rate 0.25 basis points to 8.0 percent, the first rate hike since 2009.

It left interest rates unchanged last month amid early signs that inflation remained steady.

The IMF report predicted 4.8 percent growth in Russia this year -- better than the 4.4 percent projected by the World Bank and the 4.0 percent growth seen in 2010 -- followed by 4.5 percent in 2012.

After five percent growth in the former Soviet republics this year, 2012 will slow to 4.75 percent, with the economy "coming close to its potential level only gradually."

It warned that poor consumer demand would put a drag on the former Soviet republics' potential.

"Private sector demand is likely to remain subdued as non-performing loans in the banking system constrain credit and consumption growth," the IMF said.

The report said the biggest challenges facing the Central Asian states included finding a "comprehensive and transparent" strategy for resolving the bad loan crisis and ensuring efficient public spending.

It praised also Ukraine for attaining the "return of financial stability" and predicted nine-percent growth in energy-rich Turkmenistan.

© 2011 AFP

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