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Russia’s Central Bank to switch to floating ruble rate

Russia’s central bank plans to broaden the band of the euro-dollar basket fluctuations to the ruble for a gradual transition to inflation targeting, chief banker Sergei Ignatyev said on Thursday.

“We plan to broaden gradually the technical corridor for the euro-dollar basket, which will make it possible to come close to the [ruble’s] floating exchange rate and gradually switch to inflation targeting,” Ignatyev said. Inflation targeting is an economic policy in which a central bank makes inflation projections and then attempts to steer actual inflation towards the target, using monetary instruments. Net private capital outflow from Russia stood at around $5 billion in the first four months of 2008, Ignatyev said, adding that a considerable decrease in capital inflow into Russia expected this year would help the country’s monetary authorities to curb inflation.

Inflation in Russia reached 7.5% from January 1 to May 26, compared to the government’s target of 10.5% for the whole of 2008, the country’s top statistics body Rosstat said on Wednesday. As Russia continues to reap the benefits of high world oil prices amid a large influx of petrodollars, consumer price growth has proved to be a major problem for the Russian authorities.

Russian President Dmitry Medvedev told the government on Tuesday to keep inflation below 10.5% this year. “The task of curbing inflation is now a key task for the government,” Medvedev said. The government failed to keep inflation within the target of 8% last year - the figure hit 11.9%, driven by high food and commodity prices. (