Russian central bank can meet inflation target if oil averages $35/bbl: head

Russia's central bank expects to reach its inflation target of 4 percent by the end of 2017 even if oil prices remain close to current levels, governor Elvira Nabiullina told Reuters.

She said that under its base scenario, in which the oil price is assumed to average $35 per barrel in 2016, the bank did not envisage a need to raise its key policy rate to reach its inflation target.

"If one is talking about the base scenario, with a price of $30-$35 per barrel, we see that we can reach our goal of 4 percent inflation in 2017 without raising rates," Nabiullina said in an interview cleared for publication on Saturday.

However, in the alternative "risk scenario" in which the oil price averages $25 per barrel, the bank may need to raise rates.

"In the risk scenario it will be necessary to look at what happens to inflation risks. ... If inflation risks rise we are ready to increase the key rate," she said.

The bank may reduce its key policy rate under both scenarios, she said, but it may come down later and "a bit more slowly" in the risk scenario because inflation would also fall more slowly.

Nabiullina also said the bank had not changed its intention to raise its international reserves to $500 billion, but said this was "a guide not a target" and that the policy would only be resumed "when markets are stable enough and there is a possibility (for reserve accumulation)".

She said that while it was possible for the forex market to stabilise at an oil price of $30-$40 per barrel, "neither in the base scenario nor in the risk scenario do we assume an accumulation of reserves".

The bank's existing tools were sufficient even if oil prices fall further, she said.

These tools included the benchmark rate, forex refinancing instruments and, in the event of a threat to financial stability, direct forex market interventions, she said.

Writing by Jason Bush and Katya Golubkova; Editing by Alexander Winning and Ruth Pitchford

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