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Russia to grow 4.6 pct in 2011, inflation a risk -poll

Published 03/31/2011, 08:30 AM
Updated 03/31/2011, 08:32 AM
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By Maya Dyakina and Toni Vorobyova

MOSCOW March 31 (Reuters) - Russia will cash in on high oil prices through better growth and bigger surpluses, but soaring commodity prices have prompted economists to raise their inflation forecast this year to 9 percent, a Reuters poll shows.

The poll estimated economic growth this year of 4.6 percent, up from 4.2 percent in a poll in February, with analysts citing stronger industrial production and higher capital investment.

Inflation of 9 percent this year would exceed the 8.8 percent posted in both 2010 and 2009 and far overshoot the central bank's 6-7 percent target, according to the median forecast in a Reuters poll of 16 analysts.

The forecast is up from the 8.5 percent estimate in last month's poll, despite some signs of moderating inflation in the short term, which the central bank thought sufficiently encouraging to pause in its rate hike cycle in March.

"Food prices on global markets are setting records. The catastrophe in Japan could extend the rising trend, which in the end must have an impact on the price tags in Russia too," said Alexander Gruzdov, chief analyst at MDM Bank.

At the same time, "oil prices are pushing higher, which leads to an inflow of liquidity onto the domestic market and thus negates the impact of tighter monetary policy."

Russia's Ural's crude export blend is above $110 a barrel, or nearly 50 percent higher than planned in the government's budget.

The advantage of higher oil prices is that they bring in more money for exporters and boost trade revenues. This means bigger surpluses, with the trade surplus forecast in the poll raised to $165 billion, from $140 billion a month ago, and the current account to $80 billion, from $60 billion. The budget deficit forecast was cut to 1.5 percent of GDP, from 2.0 percent.

Rising oil prices also help stimulate economic growth in the world's biggest oil producer. But higher inflation will take its toll on consumers, with the retail sales forecast revised down to 4.6 percent growth this year from 5.1 percent, and real wage growth also seen lower.

That leaves Russia in a difficult situation, analysts said. Economic growth is not strong enough to weather aggressive interest rate rises, but by leaving policy on hold Russia risks further fanning inflation and hurting consumer demand.

"April is likely to be the last month when the central bank can raise interest rates to fight inflation expectations," said Anton Nikitin, economist at Renaissance Capital.

The poll showed the benchmark refinancing rate increasing by 25 basis points by June to 8.25 percent, with the possibility of one more hike by the end of the year.

The overnight deposit rate -- seen as the most effective tool for managing liquidity -- was expected to be hiked more, to 3.50 percent by end-June, to 3.75 percent in the third quarter and to 4.0 percent by year-end from 3.0 percent now, in line with the central bank's plan to narrow the gap between different rates.

The rouble was seen appreciating in the short term, firming 2.3 percent over the next three months to 32.99 versus the euro dollar basket thanks to interest rate hikes, high oil prices and the surpluses.

"The rouble remains under a strong influence of fundamental factors -- the balance of payments surplus could post a record in the first quarter, topping $40 billion," said Maxim Oreshkin, senior strategist at Credit Agricole. (Editing by Susan Fenton)

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