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Open-End Joint-Stock Company GMK Norilskii Nikel In January the company announced that it was establishing a joint venture with one of the worlds biggest mining and metallurgical companies Rio Tinto, which was intending to undertake geological exploration and development of mineral-resources deposits in Russia. The two companies signed a protocol on cooperation at the Ministry of Natural Resources of the Russian Federation. On the basis of the principles formulated in the protocol, an agreement was signed, wherein the terms for the operation of the joint venture were stated. The agreement implies that a joint venture for geological exploration and development will be created, where 51% will be owned by the GMK Norilskii Nikel, and 49% - by the Rio Tinto. Initially, geological exploration will be focused on the Siberian and FarEast Federal Okrugs of Russia.

The currency market.

The changes on the Russian currency market early in the month were determined mainly by the developments on the FOREX market that had occurred during the Russian holidays. On the first day of trading the USDs exchange rate went down at once by 27 kopecks, due to the decreased euro/USD exchange rate. However, later on the sotuation on the market became somewhat better stabilized. A certain support to the USDs position on the international market was provided by the declaration made by the Bank of Chine concerning the low probability of a part of USD assets being transferred into other instruments, as well as by the positive macroeconomic statistics released in the USA, which demonstrated a reduced deficit in the balance of trade and an improved situation on the labor market.

An additional impact on the euro exchange rate was produced by the announcement made by the ECBs chairman as to the stability of the established interest rate, due to the probability of lowering rates of economic growth in the euro zone, despite the existing inflation risks.

Between 16 and 20 January the rouble exchange rate continued its growth not only in respect to the USD but also to the euro. The fall of the USD exchange rate resulted from the rumors as to the possible diversification of the asset portfolios held by the central banks of certain countries, as well as the new upsurge in the international oil prices. Besides, the currency market duly responded to the macroeconomic statistics released in the USA and Europe.

The trend toward the roubles strengthening was reversed only in late January, which was also a reflection of the situation on the FOREX market. The fall was provoked by the worsening geopolitical situations in the oil-producing countries, coupled with an upsurge in oil prices, as well as by the expected growth of the interest rates in the euro zone in face of the increased inflation risks. The euros position also improved due to the sufficiently positive macroeconomic statistics released in European countries.

As seen by the months results, between 31 December 2005 and 31 January 2006 the USD/rouble exchange rate went down by 0.662 roubles (-2.30%), amounting to 28.12 roubles per 1 USD. The total trade volume in the USD in the SELT electronic trading system in the period from 10 through January amounted to approximately $26.05 billion, the average daily turnover being $1.86 billion (as compared to approximately $28.19 billion, with the average daily turnover of $1.88 billion, in the first three weeks in December). The peak trade volume in the USD during that period was registered on January and amounted to approximately $3.39 billion, the lowest $1,24 billion on 16 January.

The roubles liquidity in the banking sector in January of the current year demonstrated a slight increase, as compared to that in December: the average amount of residuals on the correspondent accounts of credit institutions with the Bank of Russia in January was approximately 362.4 billion roubles, as compared to 360.9 billion roubles in December.


Dynamics of the Official USD/RUR and EUR/RUR Exchange Rates in 2004-40.39.Official USD/RUR exchange rate 38.Official EUR/RUR exchange rate 8.

Dynamics of the Dollar/Euro Exchange Rate on the International Markets 1 and 31 January, the euros exchange rate on the international market, in fact, went up by $ 0.025 (2.14 %), to 1.2095 USD per 1 euro. At the same time, the euro/rouble exchange rate went down. In the period from 10 through 31 January, the euro/rouble exchange rate decreased by 0.roubles (0.43 %), from 34.33 to 34.04 roubles per 1 euro. The total turnover of trade in the euro in the roubles between 10 and 27 January was about 267.6 million euro, the average daily turnover being at the level of 19.12 million euro (as compared to about 344.91 million euro, with the average daily turnover of 22.99 million euros, in the first three weeks in December). Thus, in the period under consideration the Russian currency market demonstrated a fall in the volumes of trade in the euro. The maximum volume of trade in the euro during that period was registered on 19 January at the level of 30.43 million euro, the minimum volume 9.01 million euro on 23 January.

Table 2.

Indices of financial markets Month September October November December January* monthly rate of inflation 0.3% 0.6% 0.7% 0.8% 2.3% estimated, annual rate of inflation in accordance 3.66% 7.44% 8.73% 10.03% 31.5% with the tendency in given month refinancing interest rate of RF CB 13% 13% 13% 12% 12% average yield to maturity of OFZ, all issues (% per 6.60% 6.55% 6.55% year) turnover of GKO-OFZ market for given month 54.13 33.04 24.(bn. roubles) yield to maturity of Minfin bonds by end of month (% per year):

Tranche 5 4.89% 5.37% 5.26% 5.27% 5.1% Tranche 6 4.40% 4.91% 4.77% 4.71% 4.7% Tranche 7 5.13% 5.73% 5.29% 5.37% 5.2% Tranche 8 4.14% 4.58% 4.58% 4.71% 4.4% yield to maturity of eurobonds by end of month (% per year):

2007 4.54% 4.97% 5.02% 5.00% 5.0% 2010 4.57% 5.15% 5.08% 5.07% 5.0% 2018 5.28% 5.90% 5.65% 5.67% 5.7% 2028 5.74% 6.18% 6.02% 6.08% 6.1% 2030 5.16% 5.67% 5.47% 5.50% 5.6% MBK- MIACR rate (% per year by end of month) 2.61% 12.13% 8.50% 4.25% 8.86% on credits for 1 day official rouble/USD exchange rate by end of 28.4989 28.4244 28.7312 28.7825 28.month official rouble/euro exchange rate by end of month 34.3811 34.5300 33.9890 34.1850 34.rise in official rouble /USD exchange rate during -0.16% -0.26% 1.08% 0.18% -2.30% month (%) rise in official rouble / euro exchange rate during -1.42% -0.43% -1.57% 0.58% -0.43% month (%) Turnover of stock market in RTS in given month 1197.60 1045.18 778.05 683.99 1095.(million USD for shares included in list for calculating RTS index ) value of RTS-1 index by the end of month 1007.76 934.99 1037.26 1125.60 1315.changes of RTS-1 index during given month (%) 14.21% -7.22% 10.94% 8.52% 16.91% * Estimates D. Polevoi The real sector of the economy: factors and trends GDP growth in 2005 was 6.4 %, against 7.2 % in the previous year. Throughout the year, growth intensity was diminishing in almost all spheres of activity. Industrial production growth in 2005 was 4.%, that of construction works 10.5 %, transport cargo turnover 2.6 %. A typical feature in was the accelerated growth in consumer demand, as compared to the dynamics demonstrated by investment demand. The retail trade turnover increased by 12.0 %, that of commercial services rendered to the population by 7.5 %, while investments in fixed assets grew by 10.5 %.

A positive factor of economic development in recent years was the simultaneous expansion of both the external and domestic markets. While the dynamics of external demand was forming under the influence of the exceptionally favorable situation on the international fuel and raw-materials markets, the expansion of the domestic market was determined by the cumulative effect of the factors of increasing business activity of the national business and the systematic growth of the populations effective demand against the background of a stable growth of the populations money incomes.

20,15,10,5,0,I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV 1999 2000 2001 2002 2003 2004 -5,-10,-15,GDP (resources) Domestic demand External demand -20,Figure 1. Growth rates of domestic and external demand in 1999 - 2005, as a percentage of the same quarter of a previous year The year 2005 was marked by gradual improvement of the terms of Russias trade with foreign countries, due both to the accelerated growth of the prices of exported commodities and to the expanding demand for the basic items of Russian commodity exports. In 2005 the percentage share of exports in the total resources became as high as 36.8%, against 30.5% in the pre-crisis year 1997. However, in face of an exceptionally favorable external economic situation, from Q II 2004 the exports growth rate was slowing down in physical terms. As compared to the year 2003, the rates of exports in physical terms in 2004 decreased by 1 p.p., and those of fuel and energy commodities by 1.8 p.p. In 2005 the slowdown in growth rates took a more acute form and could be explained by a lax dynamics of the exports of oil and oil products in physical terms. The growth rate of commodities exports in physical terms in January - November 2005 amounted to 103.7%, against 110.3% in the same period of the previous year. Finally, this resulted in a weakened impact of external demand and the slowdown in GDP growth rate by 0.8 p. p., as compared to the year 2004. Regretfully, the cumulative effect of the internal factors regulating the level of business activity proved insufficient for compensating the weakened impact of external demand on the rate of economic growth.

Stronger influence of domestic demand on the structure and dynamics of economic growth has been seen since Quarter IV 2003. In 2004 the growth in domestic demand went up to 10.3%, as compared to 7.8% in 2003 and 4.6% in 2002. In 2005 the trend of an accelerated growth of domestic demand, as compared to external demand, reestablished itself. The growth in domestic demand in the first halfyear of 2005 was 8.1% and further grew in the second half-year to 9.5%. The contribution of domestic demand to GDP growth in 2005 was almost 80%, which corresponded to the indices registered in the most favorable year 2000.

The positive quarterly dynamics of domestic demand in 2005 was determined by both the growth in the volumes of domestic production and by the expanding scopes of imports. The accelerated growth in imports as compared to domestic production represented a distinctive feature of economic growth in the past five years. In 2005 the effect produced by imports on the dynamics and structure of endproduct demand and intermediate demand on the domestic market was becoming more prominent. The emergence of this trend was sustained by the growing business incomes from foreign economic activity and growing imports efficiency in face of the roubles gradual strengthening. Imports growth in 2005 amounted to 27.9% against 24.6% in 2004 and 13.4% in 2002. A dominating impact on the structure of imports in 2005 was being produced by the intensive growth in the physical volumes of investment commodities in face of moderate rates of the import of intermediate-demand commodities.

The share of the imports of machinery and equipment in the total imports volume in 2005 was 43.5% against 41.6% in 2004 and 37.3% in 2003.

The structure of retail trade turnover in 2005 was also reflecting the continually increasing share of consumer commodities. In face of the slowing growth rates in the branches of the consumer complex induced by the permanent crisis in light industry, the share of domestic production in the resources available to the retail trade in nonfood products in 2005 went down to 43.4% against 46.4% in and 50.0% in 2001 - 2002. The dynamics of food imports was being suppressed by the sufficiently strong competitiveness of Russian producers, and the imports share in the total volume of commodity resources became stabilized at the level of 34%. As a result, the overall competitive capacities of Russian producers, which reflect, on the one hand, the positive influence of production growth, and on the other, the negative effect of the strengthening of the real exchange rate and the changing ratios of domestic prices and imports, in fact, almost returned to the pre-crisis level of 1997. This dramatically enhanced the competition between domestic and imported commodities and shifted the center of gravity toward non-price factors.

I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV -1999 2000 2001 2002 2003 2004 --Imports physical volumes Domestic production GDP -Figure. Changes in growth rates of imports, domestic commodity production and GDP in 1999 - 2005, as a percentage of the same quarter of a previous year A comparative factor-by-factor analysis of GDP dynamics demonstrated that the most dramatic response to the changing volumes and dynamics in the economys incomes was seen in the investment sphere. The upsurge in investment activity in the years 1999-2000 and 2003 - 2005 coincided with the dynamic growth in the incomes from commodities exports against the background of an exceptionally favorable situation in respect to the prices of hydrocarbons, while the slowdown in investment rates in 2001 - 2002 was brought about by a fall in demand on the external market and the lax dynamics of the international oil and metals markets. In 2003 - 2005 the national economys growing incomes from foreign economic activity were undoubtedly stimulating business activity. The rates of GDP growth in amounted to 6.4%, and those of investments in fixed assets - to 10.5%, while the similar indices during 1999 - 2004 amounted, on the average, to 6.7% and 9.5%, respectively. The exceptionally favorable combination of the factors represented by the business activity of the national business and the prices on the international raw-materials market resulted in an intensive growth in the scopes of gross savings.

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