Central Bank sounds inflation concerns

Ignatiev told the International Banking Congress in St. Petersburg that money supply has increased in annual terms at 33% to May 20 which in the long run could be dangerous to the economy.

"This was a re-establishment to a significant extent, because money supply contracted sharply in the previous period, when the crisis was at its height.” He added, “This growth mainly has a recovery character, but nevertheless, such rapid growth in money supply over a long period could lead to a growth in inflation.”

Ignatiev said the Central Bank would take measures to increase lending and keep the inflation rate below 7%, although Igantev hoped that it would not go above 6% and in the next few years stabilize around 4-5%.

“The Central Bank will cary out a policy, on the one hand, to stimulate growth in lending, and consequently, economic growth, and on the other hand not allow inflation in this year or next to be higher than 7%.”

Bank lending has accelerated but has not matched pre-crisis levels says Ignatev despite only a 3% increase in overdue loans to households and companies in April, with total lending up by 0.9%. He said that the Central bank would have to juggle between stimulating banks to give out money and holding inflation at 7%.

Prime Minister Vladimir Putin has also joined in on the inflation debate saying inflation should not go beyond the 5-7% margin.

“We need to decide on measures for a sustainable lowering of inflation, so that in the coming years the growth in prices does not exceed 5-7%.”