Russian current account surplus, capital ouflow to vanish -cbank

* Central bank sees current account in deficit by 2015

* Capital outflow to disappear by 2014, seen at $65 bln in 2012

* Balance of payments faces risks from oil price, global sentiment

* Inflation seen at 5-6 pct in 2013, 4-5 pct in 2014-15

* GDP growth seen at 3.7 pct in 2013

By Jason Bush

MOSCOW, Oct 3 - Russia's central bank expects the country's current account surplus to disappear by 2015 but it hopes capital will also exit the country at a slower pace, keeping the currency market stable, according to its mid-term monetary strategy.

A slide in the current account surplus, which measures the excess of earnings from foreign trade and investments over equivalent outgoings, has concerned economists, as it increases risks to the rouble and economic growth.

But a decrease in capital flight from Russia - which the central bank said would depend on investor sentiment and how the global economy developed - would mitigate these risks, reducing the demand for foreign currency and keeping the overall balance of payments stable.

The document, submitted to parliament this week, provides insights into the central bank's strategic thinking as it reorients monetary policy away from managing the rouble exchange rate to targeting inflation in the world's ninth-largest economy.

Reducing inflation, now over 6 percent, is crucial to providing the kind of stable economic conditions for Russia to pull off the difficult transition from oil-fuelled consumption to investment-led growth.


The central bank's focus on the external balance of payments accounts reflects their importance for driving the money supply, a key determinant of the long-run inflation trend.

But the central bank strategy had little to say about other factors relevant to price dynamics, such as inflation expectations and the economy's long-run output potential.

Its focus on external variables suggests that it is still heavily influenced by its traditional role as custodian of the rouble - a mindset that may need to shift as low inflation replaces rouble stability as the main policy objective.

In its central oil price scenario, based on the government's forecasts, the central bank sees the the current account surplus shrinking to $25.2 billion in 2013 - down from a forecast surplus of $79.9 billion in 2012 - and becoming an $8.8 billion deficit in 2015, as imports grow faster than exports.

However, it expected that capital outflows would also decline sharply, to $10 billion in 2013 from $65 billion this year, with an inflow of $15 billion in 2015, allowing Russia to continue accumulating foreign exchange reserves.

The central bank cited low interest rates in other countries as a factor that would encourage more investment into Russia, but cautioned that its rosy capital flow predictions hinged on assumptions about the international economy.

"The movement of transnational capital flows will depend on the state of foreign financial systems and trends on the global financial market, the sentiments of global investors. The risks of an outflow of capital remains," the document said.


The central bank also reiterated its aim of reducing inflation to 5 percent or lower and managing interest rates more tightly, while allowing the rouble to fluctuate more freely.

It would continue to target money market interest rates as its basic mechanism for monetary and credit policy, aiming over the next three years to narrow the spread between the central bank's deposit and lending rates.

In addition to one-day repo operations now used predominantly to manage liquidity, the central bank said it would make greater use of one-day currency swaps, precious metal swaps and one-week repo operations.

These instruments are aimed at preventing market interest rates exceeding the upper range of the central bank's interest rate corridor, and keeping market rates close to the centre of this corridor, the central bank said.

The central bank forecast that gross domestic product would grow by 3.7 percent in 2013, assuming the oil price averages $97 per barrel, though the economy would shrink by 0.4 percent were the oil price instead to average $73.

In 2014 and 2015, growth could be anywhere between 2 and 5 percent, depending on the oil price, the central bank said.

Economists polled by Reuters last month forecast 3.6 percent GDP growth in 2013. The Economy Ministry forecasts GDP growth of 3.5 percent this year.

Below is a table of key forecasts in the central bank's monetary policy strategy for 2013-15 (figures in billions of dollars unless otherwise stated).

Urals Current Net Change Total Growth Inflation oil account private in reserves in gross target price surplus sector foreign (year domestic (change ($ per capital exchange end)* product in CPI, barrel) outflow reserves (pct) pct) 2012 109 79.9 65.0 15 505 2013 73 7.0 35.0 (25.2) 480 (0.4) 5-6 97 25.2 10.0 18.0 523 3.7 5-6 121 88.3 0.0 91.5 597 4.0 5-6 2014 76 (1.4) 15.0 (14.3) 466 4-5 101 14.7 0.0 16.8 540 4-5 126 77.8 (5.0) 85.2 682 4-5 2015 78 (18.6) 10 (26.1) 440 4-5 104 (8.8) (15.0) 8.7 549 4-5 130 51.8 (20.0) 73.3 755 4-5

*Forecasts for the high, low and medium oil price scenarios are cumulative.

(Writing by Jason Bush; Additional reporting by Maya Dyakina and Maria Tsvetkova; Editing by Douglas Busvine, John Stonestreet)

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