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Citi hikes Russian GDP forecast for 2011 to 4.3% in light of high oil prices

MOSCOW. March 24 (Interfax) - Citi has increased its forecast for GDP growth in Russia this year from 4% to 4.3% due to higher than foreseen oil prices, Citi analysts Elina Rybakova and Natalya Novikova say in a Global Economic Outlook and Strategy review.

"Given the stronger oil prices, we have upgraded our forecast for GDP growth this year to 4.3%. This reflects our expectations of higher budget spending and private consumption, which we assume will be compensated by faster growth in imports. We expect close to double-digit investment growth this year on the back of state companies' investment programs and a recovery in FDI [foreign direct investment] inflows. The forthcoming elections will shape major policy decisions this year, in our view. We expect the fiscal plans to be revised up in the middle of the year and believe they are likely to include an additional indexation of public wages. At the same time, high oil revenues could reduce budget borrowing needs, and we think this year domestic borrowings will stay below the planned $50 billion," the review says.

The Citi analysts predict that consumer-price inflation in Russia, driven by rising prices for non-food goods, could reach 9%-10% in the first half of this year. "Given this, we forecast further monetary tightening, including rate hikes (up to 50 basis-point increase in interest rates on CBR deposits in March-May) and a further increase in reserve requirements," they say.

"Expectations of further tightening in monetary policy and high oil prices both suggest a strong ruble, at least in the short run. However, we think the basket could start weakening in the second half of 2011 on the back of a declining current account surplus, uncertainty related to elections, plus higher budget spending," the Citi analysts say.

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