Possible increase in U.S. rates will not hurt Russia

A possible increase in interest rates by the U.S. Federal Reserve may have a noticeable effect on Russia, however it will not lead to negative consequences, Russian Finance Minister Alexei Kudrin told reporters after a meeting with U.S. Federal Reserve Chairman Allan Greenspan.

According to Mr. Kudrin, this increase may prove "to be more noticeable for Russia as for a country with the developing economy, but it will not lead to negative consequences."

Presently, the U.S. Federal Reserve interest rates, which banks use for one-day loans, is 1%.

"When the rate on the world markets are low, capital moves toward developing markets where profitability is higher, and in this case a bubble effect occurs," Mr. Kudrin said.

According to experts, the bubble effect means a sharp outflow of capital from any country because interest in its market decreases as the U.S. Federal Reserve interest rate increases.

At the same time, according to Mr. Kudrin, this rule doen not concern Russia very much today.

"Our market is growing, we are being dynamically reformed and are creating a potential for increasing capitalization. We have not yet entered a serious bubble. The inflow of capital has coincided with the expansion of our market," the Russian minister said.

At the same time, Mr. Kudrin pointed out that "all countries must be ready for raised rates."

On Monday Mr. Kudrin will take part in a session of the UN Economic and Social Council in New York and will also address the American-Russian Business Council.

On Tuesday, Mr. Kudrin will attend After the Elections: How to Make the Russian Economy Competitive, a conference that was organized in New York by the East-West Institute.

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Author`s name Editorial Team