IMF urges Russia to cool booming demand

The International Monetary Fund on Thursday urged Russia to adopt a leaner budget and raise interest rates to cool its booming economy and avoid the danger of rising inflation. The IMF warmly praised Russia's recovery from the 2008-2009 global financial crisis and complimented the central bank for introducing broader exchange rate flexibility that has helped establish more natural market prices. But it concluded an annual visit to Moscow by noting that the cabinet's immediate priority was "to manage domestic demand in order to avoid overheating" -- a reference to excessive consumer demand. The Fund's directors "generally recommended a gradual further tightening of monetary policy to contain underlying pressures and anchor expectations," the IMF said in a statement. It noted that some Fund directors thought Russia would benefit from a more weighed and cautious approach that took "the uncertain global environment" into account and did not pursue strict fiscal and monetary tightening. Yet the majority view favoured "an ambitious fiscal consolidation path to reduce overheating pressures and vulnerabilities," the IMF statement said. Russia's economy expanded by a healthy 3.9 percent in the second quarter and is on pace to match the IMF's forecast of four-percent annual growth for this year and 2013. The IMF said the recent performance of Russia -- a country dependent on global demand for its energy and other commodity exports -- has been helped by a strong harvest and a rebound in the price of oil. Yet Russian consumer prices are expected to take off in the second half of the year as new utility tariffs kick in that the government had been delaying until after President Vladimir Putin's swearing-in to a third term in May. The headline inflation rate was estimated to have reached 5.7 percent at the end of July after dropping to a post-Soviet low of 3.8 percent last year. The IMF cautioned that its "staff's measure of core inflation -- a good proxy of trend inflation -- remains high at around six percent."