Thursday, 29 October 2009

Getting tough on inflation

Russia's inflation could fall to just over 8 per cent, Prime Minister Vladimir Putin said Sunday, smashing earlier official forecasts of 12 per cent and boosting recovery prospects.
"This year inflation might be 8 per cent and a little more, then it'll move towards 6 [per cent] and then towards 5 [per cent]," Vladimir Putin said at a Russia-Finland forestry summit in St. Petersburg, RIA Novosti reported.
Inflation has already hit 8.1 per cent for the year to date but has slowed down to almost zero in the last three months and analysts see this as positive for Russian markets.
"Prime Minister Putin's bullish view of the inflation trend ... will provide support for the rouble and domestic investor sentiment generally, but the main driver will again be where the US markets and oil trade through the week," Chris Weafer, chief strategist at UralSib, wrote in a note to investors.
Putin's comments assume inflation will remain flat until the end of the year, but this is unlikely as cash is often doled out from the budget in the fourth quarter.
"We also think other factors, such as producer prices, budget spending and monetary emission, are still not adding enough pressure to [the] CPI, hence, these conditions remain favourable for loosening monetary policy as early as October," Renaissance Capital analyst Anton Nikitin wrote in a research note.
Latest estimates from the Central Bank put price rises at a maximum of 10.3 per cent for the year.
The positive economic news capped a good week for the markets, which saw the bourses consolidate gains from earlier in the month while investment came flooding in.
Russian stock funds took in $450 million last week, their highest weekly inflows since US-based research company EPFR started taking records in 2002.
The oil price fluctuated around the $80 a barrel level for most of the week, lending support to the markets, which mostly traded in line with crude. OPEC president Jose Botelho de Vasconcelos said Monday that they will try to balance oil prices at around $75 to $80 a barrel as anything higher would harm prospects of an economic recovery.
"You know that, if necessary, some countries are open to injecting more oil into the market and that will be done," Botelho de Vasconcelos said Sunday, Reuters reported.
The oil price was already trading lower on Monday morning on speculation of an OPEC output hike at the organisation's next meeting in December.
"The price of oil will likely slide this week ...because there is an increasing focus on the very high inventory levels of crude and products and on the comment by the OPEC Secretary General," Weafer wrote.

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