Ignatyev wants stronger ruble

"We think that the appreciation of the ruble in real terms by 4 to 6 percent a year is completely acceptable, and this is the sort of goal we are setting for our monetary policy," Ignatyev said.

He also said that Russia has been running a capital-account surplus in the second quarter of this year, suggesting Russians are bringing some of their capital back home after years of sending it abroad.

Three months into his term, Ignatyev is still coming to grips with striking a balance between inflation and ruble appreciation. His predecessors were hounded by the same problem and it has been the bank's key monetary policy challenge since the devaluation in 1998.

Both the government and the Central Bank are sticking to their inflation forecasts of 12 percent to 14 percent for the year. However, prices are already up nearly 9 percent, and economists say few continue to believe the figure is achievable.

The ruble rate against the dollar has been falling, but at a slower pace than the rate of inflation, resulting in real appreciation that is hurting domestic producers. According to Ignatyev, the ruble firmed more than 9 percent in real terms last year and has already appreciated more than 3 percent in the first five months of 2002. "If it were not for the policy being pursued by the Central Bank, the appreciation would be much stronger," he said.

By increasing currency reserves and protecting the ruble, the Central Bank is trying to cut inflation, which is fueled by tariff increases and structural reforms.

Ignatyev said the Central Bank would not hesitate to use its foreign currency reserves to buy up rubles later this year to prevent any significant fall in the ruble and keep inflation under control. "We expect less growth of the currency reserves in the second half of 2002 and probably there will be a drop in December, due to seasonal ruble weakness," he said.

The Central Bank's foreign exchange and gold reserves have increased $5.9 billion since January 1, reaching $42.5 billion as of June 14. But part of it will have to be spent to protect the ruble because of capital outflows and government spending, which is usually higher in the second half of the year. Partly as a result of higher budgetary expenditures at the end of last year, consumer prices jumped 3.1 percent in January, the highest monthly spike in three years.

The Central Bank has targeted an average ruble rate of 31.5 for the year, while the ruble/dollar rate in the 2003 draft budget is set at 34. On Tuesday, the official rate was 31.47.