UPDATE 1-Russia's Medvedev calls for lending rates regulation

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MOSCOW, April 8 (Reuters) - Russia’s President Dmitry Medvedev called on Wednesday for state regulation of commercial banks’ lending rates as a temporary measure to boost credit to the cash-starved economy.

The government struggles to resume lending and bring down prohibitive rates, which exceed the central bank’s official interest rates by a wide margin, reflecting increased risks in the Russian economy.

“One approach, which is shared by many our colleagues in the government, is that there is no need to regulate, everything will go back into place,” Medvedev said at the meeting with the United Russia party.

“There is another approach, that we need to manage this process through state regulation. From my point of view, this approach is better during the crisis,” he said, adding that the regulation could be put in place for up to one year.

Medvedev said such regulation could include subsidised interest rates but did not elaborate further. The government has already promised subsidies on certain car loans and state guarantees on loans to some enterprises.

Artificially low lending rates may encourage risky business development strategies and potentially create new problems for the economy and the banking sector.

Both Medvedev and Prime Minister Vladimir Putin have attacked banks for their lending policies in the past, threatening legal action for diverting state support money to operations other than lending to enterprises.

The government also instructed state-controlled banks to grow their credit portfolios by at least 2 percent a month but has so far refrained from setting lending rate targets.

Medvedev, advised by a group of liberal economists from the Institute of Contemporary Development, is the top authority in Russia but Putin runs the economy. Medvedev’s criticism of the government’s decisions has been rare.

Both bankers and businessmen blame the central bank’s monetary policy for high lending rates while the government and the central bank say official interest rates cannot be lower than inflation, still running at around 13 percent.

German Gref, CEO of Russia’s largest bank Sberbank, critisized the government for acting too slowly on the bad loans issue, adding that all of Sberbank’s first quarter profits will go to provisions. [ID:nL8188917] (Reporting by Denis Dyomkin, writing by Gleb Bryanski)