Russia's economic prospects have improved considerably and inflation is likely to continue to fall, according to CS First Boston, an investment bank.


A recent standby loan from the International Monetary Fund and an agreement on debt arrears from 1992 and 1993 should facilitate the restructuring of external debt and encourage foreign investment, it said in the latest issue of its Emerging Europe quarterly.


"Following the economic instability [and] political uncertainty of late 1994, the outlook has brightened considerably, with output practically stabilized on an annual basis and inflation on a clear downward trend," the report said.


Monthly inflation slowed to 8 percent in April from 8.9 percent in March, 11 percent in February and 17.8 percent in January, it said.


The London-based bank said it expected inflation to continue to slow in 1995, but was less optimistic than the government, which forecasts an average for 1995 of 4 percent to 4.5 percent.


"Parliament's approval of the tough 1995 budget is a victory for the government and should herald a period of further falls in inflation, helped by very tight monetary policy in the first quarter," it said in the report.


CS First Boston said Russia suffered significant economic costs associated with the fiscal tightening earlier in the year, with investment falling sharply and unemployment rising.


Export performance has been particularly encouraging, aided by a reduction in oil export tariffs and general trade liberalization, according to the report.


Trade reform, however, could lead to increased capital flight in the first half of the year, the investment bank warned.