* Russia economy to stagnate in 2010
* Shrinkage of 6.5 percent seen in 2009
* Outlook to depend on banking sector health
* President offers new term to c.bank chairman
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By Toni Vorobyova and Gleb Bryanski
MOSCOW, June 1 (Reuters) - The Russian economy will not return to growth in 2010 after shrinking 6.5 percent this year due to the weak oil price and lacklustre capital inflows, the International Monetary Fund (IMF) said on Monday.
Previously the IMF expected the economy of the world's second largest oil exporter to contract 6.0 percent this year, in line with the government's own forecast, and to expand 0.5 percent in 2010.
Despite these downward revisions, President Dmitry Medvedev gave implicit backing to the central bank's controversial policy of moving toward a free-floating rouble by seeking to reappoint the bank's chairman for a new term.
"In the external environment at this stage there is little to suggest that there will be a significant and sustained recovery in the oil price anytime soon," IMF's mission head Poul Thomsen told a press briefing.
"Also the global deleveraging that is taking place suggests that capital inflows to Russia as well as to other emerging markets are unlikely to return to their pre-crisis levels," he added. Thomsen said the fund saw eye to eye with the central bank on monetary policy but urged the regulator to allow the rouble exchange rate to fluctuate in reaction to medium-term fundamentals as well as loosen monetary policy.
"As we see the situation today, there should be room for a slow relaxation of monetary policy," he said.
The central bank runs a managed float of the rouble against a basket, made up of 0.55 dollars and 0.45 euros, and has carried out a gradual 35 percent devaluation to allow the rouble to catch up with falling commodity prices.
COST OF ALLOWING INFLATION
Medvedev asked the current chairman of the Bank of Russia, Sergei Ignatyev, to serve for a third term in a sign that the central bank's policies were viewed as successful despite sharp criticism from business lobbies.
"The appointment means we will continue moving slowly toward inflation targeting and a free float. Ignatyev has always cautiously supported the gradual move. So I think it is realistic in 2010," said Elina Rybakova from Citibank.
Thomsen said the formal timing for a free float was less important than getting Russia's inflation under control and said the crisis "will show Russia the cost of allowing double digit inflation".
Thomsen said the forecasts will "depend critically on the health of the banking sector" and called for a "systemic analysis" of Russian banks, adding that more certainty would help boost lending.
"At this stage the central bank does not have a full picture of the situation in individual banks, including the possible capital shortfall," Thomsen said, suggesting the regulator could force problem banks to recapitalise.
"We are concerned that uncertainty in the banking sector will continue to linger," he said.
Moody's ratings agency on Monday estimated that Russian banks may need around 1.3 trillion roubles ($42.29 billion) for recapitalisation this year -- 2.6 times more than the central bank has estimated would be required.
The IMF also called on Russia to reduce fiscal stimulus to 7 or 8 percent of GDP compared with the current 10 percent of GDP and make it more targeted towards low-income households, facilitating their access to credit.
"We are concerned about the government's ability to reverse spending increases once the situation normalises," Thomsen said. The IMF also expressed concern that Russia's drive to enter the World Trade Organisation (WTO) "is losing momentum" in an environment when more investment is needed to boost long-term growth. (Reporting by Gleb Bryanski and Toni Vorobyova; editing by Stephen Nisbet)