Russia's Economy Ministry said it had raised its forecast for the average 2011 oil price by 30 percent, to $105 per barrel from $81 per barrel, following a sharp rise on global markets.

Finance Minister Alexei Kudrin told the Duma the higher oil price assumption would boost oil and gas revenues by 1.14 trillion rubles ($40.37 billion) and nonoil and gas revenues by 301 billion rubles ($10.66 billion).

"Despite directing additional income (into the budget) there will still be a (2011) budget deficit at 1.0-1.4 percent of gross domestic product," Kudrin said, adding that Russia saw a budget surplus of 1 percent of GDP in the first quarter.

He said Russia would also run a budget deficit in 2012 if oil should fall below $100 per barrel.

Deputy Economy Minister Andrei Klepach had earlier said his ministry expected oil to hold above $100 between 2012 and 2014. He forecast a budget deficit of 0.6-0.8 percent this year, and argued against Kudrin's favored policy of channeling extra oil revenues into wealth funds, calling it a "dead-ended option".

Kudrin's more pessimistic numbers suggest Russia plans to substantially increase public spending ahead of parliamentary elections in December and presidential elections next Spring.

It also suggests a political defeat for the hawkish finance minister, who has campaigned to balance the budget and save as much of the oil windfall revenue as possible.

The Economy Ministry also revised the 2011 average ruble rate to 28.4 versus the dollar from a previously assumed 31.3 rubles. The current rate is 28.2 rubles per dollar.

Finance Minister Kudrin said a stronger currency would hurt budget income by making exports cheaper in ruble terms.

"If a $10 rise in oil prices provides an extra 670 billion rubles of income, a two-ruble appreciation (of the ruble) takes away 370 billion rubles. That is, we instantly lose half of the rise (in oil prices) due to appreciation (in the ruble)," said Kudrin.

Despite oil-driven revision of the budget factors, the GDP growth projection was left at 4.2 percent.

"We have substantially lowered the investment forecast — to 6 percent instead of a 9 percent rise due to a big breakdown in January-February. The beginning of the year is bad and it shows how fragile and unsteady the investment process is," said Klepach.

The Economy Ministry revised the 2011 inflation forecast to 7.0-7.5 percent compared to the current official target of a 6-7 percent rise in consumer prices.

"We have left the range for inflation of 7.0-7.5 percent," Klepach said, adding however that there is a room for a further slowdown should global food prices ease.

Kudrin said a 7 percent rise in consumer prices could still be achieved, calling on the central bank to keep monetary factors under control in the second half of the year.

After leaving interest rates unchanged in March, the central bank is now set to meet on rates in late April, with many analysts expecting a hike to absorb ample ruble liquidity.