MOSCOW - Russian inflation will probably reach 14-15 percent in 2002, up from the government's official target of 12-14 percent, the central bank's First Deputy Chairman Oleg Vyugin said on Monday.

"It is likely that it (inflation) will be 14-15 percent in 2002," he told a parliamentary committee.

"The analysis shows that monetary factors account for 50-60 percent of inflation, the remainder is tariffs and seasonal factors)."

Vyugin said inflation would be stoked by the high price of oil, Russia's main export, which brings in dollars that the central bank then has to cover by printing new roubles.

"The main source of money supply is the balance of payments surplus," Vyugin said. "High oil prices through the balance of payments reflect on domestic prices."

Higher prices for domestic electricity and gas, for which the government is responsible, also contribute considerably to inflation.

Vyugin said one of the ways to curb inflation would be the Finance Ministry's creation of a financial reserve, a special fund designed to cushion peak foreign debt payments in 2003.

"(But) judging by the facts, the Finance Ministry cannot form the financial reserve and intends to spend it, that is why all the burden falls on the central bank," Vyugin said.

Last month Finance Minister Alexei Kudrin said the reserve would not be created to the target volume of 197.4 billion roubles ($6.23 billion) by the start of 2003 because of the delayed sale of a state stake in oil major LUKOIL , and the government's indecision on issuing a Eurobond this year.

GOVERNMENT PLAN TO CUT INFLATION

Consumer price inflation stood at 10.3 percent in the first nine months of this year, compared with 13.9 percent in the same period last year.

Vyugin said the government was set to cut inflation by about two percent each year. Last year consumer price inflation stood at 18.6 percent.

"If we want to push inflation down, we must push the monetary base down," Vyugin said. He said the 2002 monetary base growth target was 27 percent, versus 22 percent in 2003.

Vyugin said he favoured a fall in oil prices, trading at more than $28 per barrel of benchmark Brent crude on Monday.

He said if prices slipped to $14 a barrel, Russia's balance of payments deficit would amount to $2-3 billion, but the central bank would be able to compensate by selling some of its reserves, currently at a record high of $45.3 billion.

"In this case the liquidity problem will be solved on its own," he said, but added that it could in turn create budget problems.

The government has set a 10-12 percent target in its 2003 budget draft. Vyugin said the central bank's target was lower.

"Nine to 12 percent inflation (in the central bank's plans) are not ambitious," he said.

However, Deputy Economy and Trade Minister Arkady Dvorkovich said the nine percent target was unrealistic. ($=31.6795 roubles).