OREANDA-NEWS. The International Monetary Fund (IMF) recommends Belarus' monetary authorities should adopt an inflation targeting framework.

The IMF staff made a conclusion to this effect in a report, which followed the Article IV consultation and Fourth Post-Program Monitoring discussions with Belarus.

The aim should be for single-digit inflation by no later than 2014. In this context, staff encouraged the NBB to make progress toward adoption of an inflation targeting (IT) framework. The idea to peg monetary policy indicators to the inflation forecast made by the government (12% for 2013).

The government's plans to raise the first grade wage by over 20 percent, which will set the tone for wage increases in the wider economy, should be reconsidered. To avoid fueling domestic demand and help recover lost competitiveness, nominal wage growth should be contained to no more than 12 percent, in line with the authorities' official end-year inflation target.

The IMF recommends that the National Bank of Belarus should raise rates without delay if expansionary wage or directed lending policies are to jeopardize stability or if exchange rate pressures reemerge.

The flexible exchange rate needs to be maintained to cushion against shocks and mitigate external imbalances. Intervention should generally be limited to smoothing excessive exchange rate volatility, while not obstructing the underlying trend in the exchange rate. This said, given the low reserve levels and the absence of indications of rubel undervaluation, the authorities should seize on opportunities to build reserves during periods of appreciation pressures.

Belarus was there to witness a 0.7% inflation growth in May 2013, after a 0.5% rise in April and a 1.1% hike in March. In January-May consumer prices have grown 6.6%. Belarus' government expects inflation growth to stay under 12% in 2013.