* C.bank to continue policy of widening rouble trading band
* EconMin wary of inflation targeting
* EconMin says cbank should weaken rouble
* Currency hits fresh 2010 lows vs basket, euro
* Cbanker says balance of payments surplus to weaken in 2011
(Adds EconMin quotes)
By Elena Fabrichnaya and Daria Korsunskaya
MOSCOW, Oct 21 (Reuters) - Russia's central bank is likely to allow the rouble greater flexibility by widening its trading band further, but floating the currency freely would be a political decision, a senior monetary official said.
"The question of moving the rouble towards a free float -- this is a political decision," Sergei Shvetsov, a central bank board member, told a meeting of lawmakers and central bankers at the Duma, Russia's lower house of parliament.
"The exchange rate policy (for 2011-2013) suggests a further widening of the floating corridor ... a scaled-down amount of interventions and potentially the abolition of this corridor if such decision is made."
The central bank needs a free-floating rouble to move towards a policy of inflation targeting and abandon the prior policy of targeting exchange rates.
However, the central bank's move in this direction may face some opposition from other policymakers.
Speaking at a conference on Thursday, head of the Economy Ministry's forecasting department Oleg Zasov said the ministry was always cautious about inflation targeting adding that the central bank should not "leave the rouble in the hands of speculators".
"The biggest threat from inflation targeting in a long run is that the rouble may be overvalued. We think it is important that the central bank does not allow a further firming in the rouble," Zasov said.
The Russian currency on Thursday hit fresh 2010 lows against
the euro
"The predictability of the rate has significantly decreased," Shvetsov said.
In recent weeks, the central bank has bought some $3.3 billion to keep the rouble within its trading ranges, he added.
Finance and central bank chiefs from Russia and other G20 countries are meeting on Friday and Saturday in Gyeongju, South Korea, seeking agreement on a common path to manage currency, trade and macroeconomic imbalances ahead of a leadership meeting in Seoul next month. [ID:nTOE69K01G]
NO LIQUIDITY SHORTAGE
Russia's central bank widened the basket's floating corridor to four roubles from three on Oct. 13 in a move seen as an initial step towards a free-floating currency. [ID:nLDE69C0TW]
The change suggests new boundaries at around 32.90 and 36.90 roubles against the basket.
Russia has gradually allowed more flexibility for the rouble, which is largely driven by oil and gas prices, as it seeks to shift the key focus of its policy to targeting inflation rather than the exchange rate in coming years.
The local banking system should suffer no liquidity shortage in the next few months, Shvetsov said, adding that it would support stability on the money market.
"There is no basis for money market interest rates to jump away from our minimum 2.5 percent rate early next year," Shvetsov said, referring to the bank's overnight deposit rate.
Russia's interbank overnight money rates have held at around
2.5 percent since May
Liquidity in the banking sector, including both deposit and the less-flexible but higher-yielding correspondent accounts, has stayed at comfortable levels between $800 billion roubles ($26 billion) and $1 trillion roubles in recent months, according to central bank data.
BALANCE OF PAYMENTS
Relatively high oil prices [O/R] in 2010 have allowed Russia to enjoy a healthy current account surplus, benefiting the balance of payments account, Shvetsov said.
But next year the balance of payments surplus is forecast to decline to $46 billion from $73 billion in 2010.
"Balance of payments will weaken ... because of a rise in imports, both, consumer and industrial," Shvetsov said.
The central bank has taken the oil price of $75 per barrel as the basis for its 2011 monetary policy.
"We are expecting that oil prices will continue in the range of $75--$80 per barrel," Shvetsov said.
(Additional reporting by Andrey Ostroukh; Writing by Lidia Kelly; Editing by John Stonestreet and Toby Chopra)