Russia's authorities have been praised by the International Monetary Fund (IMF) for their handling of the financial crisis, but it suggests the central bank should be more aggressive in fighting inflation.

In a statement, the IMF predicts the Russian economy will expand at a pace of 3.5 per cent next year, though it warns that bad loans could dampen domestic demand and weigh on credit growth.

The body also indicates concern that inflation, a rapid appreciation of the rouble and greater dependence on oil could be the consequences if higher spending becomes entrenched in Russia. The country's expenditures are forecast to rise by seven percentage points of gross domestic product compared with 2007 levels.

"The task now is to develop exit strategies that appropriately balance Russia's short- and medium-term objectives," states the IMF, which deems the central bank's current inflation target for 2010 "unambitious". At the moment, Russian inflation runs at an annualised rate of six per cent.

Last month, the regulator cut interest rates for the ninth time in an attempt to slow appreciation of the rouble and support economic recovery. According to the IMF, appreciation of the currency associated with capital inflows is likely to be temporary.