Russia's authorities concerned about too low inflation

 Russia's authorities concerned about too low inflation

Russia's annual inflation this month will be below 3%, which, however, can ot be assessed as a positive phenomenon in terms of deviation from the Central Bank's goal of 4%, the head of the Russian Ministry of Economic Development Maxim Oreshkin said on the sidelines of the World Trade Organisation Informal Ministerial Gathering in Marrakech.

The minister recalled that even in April, he predicted inflation below 3% if the ruble rate keeps at current levels.

"The exchange rate has not changed much. According to our estimates, by the end of October, inflation will decline below the level of 3%, and we will have a deviation of more than 1% from our target, which is not good," RIA Novosti cited Oreshkin as saying.

Oreshkin also positively assessed the Central Bank's reaction to such soft inflationary trends, citing, for example, a September decline in the key rate.

Chairman of the State Duma’s Financial Market Committee, Anatoly Aksakov, speaking with Vestnik Kavkaza, noted that, indeed, uncontrollably declining inflation is negative for the country's economy. "Such inflation restrains economic growth. Therefore, they agreed on the 4% target: on the one hand, it provides relatively low inflation, and on the other hand, conditions for economic growth. In order to curb the decline in inflation, it is necessary to reduce the key rate, thereby stimulating economic growth," he said, adding that he expects a key rate to be cut by 0.75 percentage points.

The professor at the department of the stock market and investments at the Higher School of Economics, Alexander Abramov, agreed that the inflation of 1% below the target is a negative trend. "The most dangerous thing for the authorities right now is deflation in the case of inflation dropping to 0 or even lower, which would kill the demand for goods from the population and impede economic growth. Maxim Oreshkin does not just want the Russian economy to avoid deflation, he also worries about economic growth," he explained.

Alexander Abramov also noted the effectiveness of reducing the key rate to slow drop in inflation. "This is exactly what the business is currently waiting for from the authorities. With a good development of the situation, a low key rate should slightly spur inflation. But there is a risk that it will entail a weakening of the ruble if the business starts to use additional money to buy currency," the economist believes.

"The current figure is a bit artificial and does not match either what the population feels or what the indexes fix in different regions. Today it is not very clear what the 3% inflation means. The current monetary policy is absolutely neutral to growth, as a whole, it fulfilled all its goals. In my opinion, the Ministry of Economic Development gives a signal to the Central Bank that it is time to seriously weaken monetary policy," the professor at the department of the stock market and investments at the Higher School of Economics concluded.