Putin warns of economic strife should inflation rise uncontrollably

Russian President Vladimir Putin on Tuesday said increasing inflation had forced the central bank to hike interest rates to 12 per cent last month, warning that Russia's economy would suffer if price rises were allowed to get out of control. "In conditions of high inflation, it's practically impossible to form business plans," Putin said at the Eastern Economic Forum in Vladivostok. Putin said he saw no problems with rouble volatility, and the authorities had a cache of tools to keep the currency and markets under control. The rouble hit its strongest level in almost six weeks against the dollar in early trade on Tuesday, buoyed by gradually increasing foreign currency sales by exporters and prospects that the central bank may hike rates again this week.

Putin said the rouble rate was affected, among other things, by exporters not converting some foreign currency earnings to roubles, but he said that no sudden moves would be made in terms of capital controls or other steps to limit volatility. He said the government saw no need to raise taxes for now. It has imposed a windfall profit tax on some companies this year to increase budget revenues.

The Kremlin publicly called for tighter monetary policy last month as the rouble tumbled past 100 to the dollar, leading the central bank to raise rates by 350 basis points to 12 per cent on Aug. 15 in an emergency meeting. Most analysts expect another hike this Friday, but some top bankers have said a hold is more likely, especially as the rouble has strengthened this week. Putin said the central bank had acted in a timely manner last month, but noted that high rates restrain lending and economic growth. "Of course, we need to influence this, but if we miss a situation that will lead to uncontrollable inflation growth, in the long run it will be even worse for the economy," Putin said.

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