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In the first three weeks of April, the amount of gold and foreign exchange reserves, as well as the narrowly defined monetary base increased by 0.6 per cent and 2.8 per cent respectively.

Figure Changes in the Monetary Base and in the Gold and Foreign Currency Reserves in 2003 - 2004.

1450 1420 Monetary Base (billion rubles) Gold and Foreign Currency Reserves (billion dollars) According to the preliminary estimates presented by the RF Finance Ministry, in January through March of 2005 the payments pertaining to the RF foreign debt amounted to RUR 237.3 billion. The payments associated with the servicing of the foreign debt made RUR 68.8 billion, while the repayment of the principal debt amounted to RUR 168.5 billion. At the same time, there were registered new borrowings in the amount of RU$ 2.1 billion.

This March, representatives of the RF Central Bank stated that since the stop out price is retained at the previous level for the purposes of formation of the stabilization fund, the operations pertaining to sterilization of money supply should prevail over the operations relating to refinancing. At the same time, it is assumed that in the case the stop out price would be increased, the RF Central Bank could use its possibilities to refinance commercial banks on a larger scale.

P. Trounin It should be reminded that the narrowly defined monetary base is fully controlled by the RF Central Bank in contradistinction to the monetary base in the broad definition.

billion rubles billion dollars 1-7.12.2-8.02.4-10.05.6-12.07.8-14.09.6-13.04.23-29.03.13-19.04.25-31.05.15-21.06.17-23.08.20-26.10.10-16.11.22-28.12.12-18.01.16- Markets In April, the overall situation observed on the Russian financial markets improved somewhat. The stock market has somewhat declined by the end of the month. The fact that there were lodged tax claims against the TNK BP oil company amounting to RUR 22 billion, as well as the statement made by V. Alekperov, the President of the NK LUKoil to the effect that his company may be required to pay tax arrears accumulated in 2002 and 2003 demonstrate that the Russian tax authorities apparently are not going to confine themselves to only one YUKOS affair. The Market for Government Securities In April, on the market of the Russian foreign debt there was observed a decline in quotations of traded instruments. A gradual growth of the market was determined by the rising hopes of investors of a moderate rise of interest rates in the USA. At the meeting of the US FRS held on March 22, it was stated that there had been no plans as yet to increase the tempo of the rise in the interest rates.

According to the data as on April 26, the yield to maturity of Russian Eurobonds RUS-30 was 6.per cent p.a.; RUS-18: 6.31 per cent p.a. Besides, on the same date the yield to maturity of the Russian Eurobonds was: Minfin bonds, 7th tranche: 5.89 per cent; Minfin bonds, 6th tranche: 4.28 per cent;

Minfin bonds, 5th tranche: 5.41 per cent; RUS-07: 4.78 per cent.

Figure 1.

Minfin bonds' yields to maturity in February - April 6.5% Tranche 5 Tranche 6 Tranche 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% In the course of preparation of the survey, there were used analytical materials and surveys published by the Zenith Bank, investment company ATON, MICEX, and the materials presented at web sites of Russian issuing companies. 2.

Yields to maturity of the Russian eurobonds with maturity in 2030, 2018 and 2007 in February - April 7.5% 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% USD-2030 USD-2007 USD-In the beginning of April, on the market of the Ruble denominated government debt the situation was determined by the intentions of the regulating authorities to sterilize a significant amount of money liquidity. However, the quotations of securities declined. In part, these developments were determined by the fact that investors prepared for the additional placement of the issue of OFZ 46018, the respective premium was at 0.08 p. p. On the whole, the favorable situation on the market of Ruble denominated public debt was determined by the stabilization of the Ruble exchange rate against the US dollar and a perceptible decline in the quotations of Russian Eurobonds.

Over the period from April 1 to 26, the aggregate turnover of the secondary GKO OFZ market made about RUR 133 billion, while the average daily turnover was at RUR 7.42 billion (as compared with RUR 164 billion and RUR 10.26 respectively as observed in March). Therefore, the activity on the market has significantly declined in comparison with the indicators registered in March. Over this period, there took place several auctions for the placement of OFZ. Thus, on April 6 there were held auctions for additional placement of OFZ 25058 and OFZ 46018. The amount of the issues made RUR 2.028 billion and RUR 2 billion respectively, while the actual amount of these additional placements made RUR 1.97 billion and RUR 1.91 billion respectively. The weighted average yield of the placements made 7.44 per cent p. a. and 8.82 per cent p. a. respectively. On April 13, there was held the auction for the additional placement of OFZ AD 46018 amounting to RUR 5.9 billion. The actual amount of the placement made about RUR 4.91 billion, while the weighted average yield of the placement made 8.89 per cent p. a. On April 20, there was held the auction for the additional placement of OFZ AD 25057 amounting to RUR 10 billion. The actual amount of the placement made about RUR 9.99 billion, while the weighted average yield of this additional placement made 7.73 per cent p. a.

As on April 28, the amount of the GKO OFZ market made RUR 612.63 billion at par and RUR 594.2 billion at the market value. The duration of the GKO-OFZ market portfolio was 1705.63 days.

The Market for Corporate Securities The business situation on the stock market. In April, on the Russian stock market there prevailed mixed trends of quotations. Thus, in the beginning of the month the positive trends observed on the market were generated by the statements of G. Gref, who referred to the abolition of restrictions on with Gazprom shares before the end of 2005 and confirmed the schedule of the transaction involving the merger of the natural gas monopolist with Rosneft, as well as the news about the presentation of a draft Presidential decree with respect to privatization of Svyazinvest to the RF Government and the exclusion of this company from the list of strategic enterprises. The favorable business situation observed on the oil market also had a positive impact on the quotations of domestic stocks.

At the same time, in the beginning of the second week of the month, the positive dynamics reversed and the market experienced a sharp decline in quotations after there were made public the news that tax claims amounting to RUR 22 billion for 2001 had been lodged against the oil company TNK BP.

Besides, V. Alekperov had publicly announced that he did not exclude the possibility that tax claims with respect to the tax arrears accumulated in years 2002 and 2003 could be lodged against LUKoil.

The anticipation of growing tax risks was further supported by the statement made by S. Shatalov, who said that the practice of lodging of tax claims against companies would continue and that the YUKOS affair would not be the last such case.

The negative external backdrop (decreasing world oil prices, declining US and Asian indicators) also facilitated a further decline in the Russian stock indicators. However, later the market experienced an upward adjustment, which was caused by the statement made by A. Kudrin to the effect that it was necessary to appreciate the Ruble in order to prevent inflation, as well as the publication of the news that the RF Ministry of Economic Development and Trade presented to the RF Government a plan concerning the reform of electrical power engineering.

Figure 3.

90 800.The total volume of trading ($) 80 750.The RTS Index 70 700.60 650.50 600.40 550.30 500.20 450.10 400.350.Over the last week of the month, the quotations again demonstrated mixed trends, what was as it seems determined by the abating activity of investors on the eve of the May holidays. At the same time, it should be noted that the address of V. Putin to the RF Federal Assembly, in which he stated the necessity to reduce the limitation periods with respect to privatization transactions from 10 to years, to curb the influence of the bureaucracy and put the end to the arbitrary actions of the tax authorities could provide only a short term impact on the market in spite of the positive nature of the statement. It seems that the effect has been so short lived because investors have evaluated the probability of the practical implementation of the Presidential initiatives as rather low.

On the whole, in the period between April 1 and April 27, the RTS index decreased by 0.77 per cent or by 5.27 points in absolute terms. Over the same period, the turnover of the RTS trading with the points mln US dollars s included in the RTS index amounted to about US $ 318 million, while the average daily turnover at the RTS made about US $ 16.7 million (US $ 314 million and US $ 18.5 million respectively observed in March of 2005). Therefore, in comparison with the data collected in the preceding month, the activity of investors remained practically at the level registered in March. The highest and the lowest volumes of trade at the RTS made US $ 33.9 million (on April 6) and US $ 7.5 million (on April 25) as compared with US $ 31.37 million and US $ 3.34 million respectively registered in March.

Over the last month (from March 24 till April 27), the majority of blue chips were characterized by a decline in prices. The leaders in terms of the downward movement of prices were the shares in Mosenergo (- 22.7 per cent). The Mosenergo stocks were followed by the shares in Surgutneftegaz, Norilsk Nickel, and Sibneft, the prices of which decreased by 4.83 per cent, 4.39 per cent and 4.31 per cent respectively. The shares in YUKOS fell by 0.9 per cent in March. At the same time, the leaders in terms of growth in prices were the shares in Sberbank of Russia, the market value of which increased by 9.78 per cent. The Sberbank securities were followed by shares in LUKoil (+ 2.68 per cent), Tatneft (+ 1.79 per cent), Rostelekom (+ 0.94 per cent), and RAO UES of Russia (+ 0.89 per cent).

Figure 4.

Dynamics of the Russian Blue Chips from March 24 to April 27, 15% 10% 5% 0% -5% -10% -15% -20% -25% Change in price (%) In April, the list of leaders in terms of the volume of turnover at the RTS7 looked as follows: the shares in LUKoil (31.44 per cent), the RAO UES of Russia (19.67 per cent), the GMK Norilsk Nickel (12.2 per cent), and Rostelekom (3.37 per cent). Besides, according to the results of weekly trade, among the leaders in terms of the volume of turnover were also the securities of Surgutneftegaz and Sberbank of Russia.

According to the data as on April 27, the top five leaders of the national stock market by capitalization looked as follows8: LUKoil: US $ 29.37 billion; Surgutneftegaz: US $ 25.33 billion; Sibneft: US $ 14.75 billion; GMK Norilsk Nickel: US $ 12.16 billion, and the Sberbank of Russia: US $ 12.16 billion.

The market for fixed term contracts. In April, the activity of investors on the RTS market for fixed term contracts (FORTS) somewhat decreased in comparison with the March indicators. Thus, in the On the classical stock market.

According to the data presented by the RTS.

Ukos Tatneft Sibneft GMK LUKoil Russia Russia NorNikel RAO UES Mosenergo Rostelekom Sberbank of Surgutneftegas period from April 1 till April 27, the aggregate volume of trade in futures and options at the RTS amounted to about RUR 25.24 billion (123.89 thousand transactions; 2.93 million contracts) as compared with RUR 28.3 billion (119.9 thousand transactions; 3.83 million contracts) registered in March.

Futures contracts accounted for the greatest percentage of transactions: the volume of trade in these contracts made RUR 21.1 billion (2.44 million contracts, 116.64 thousand transactions) over the period under observation. As before, options were in a much lower demand: the respective amount of trading made about RUR 4.13 billion (7.26 thousand transactions, 484.17 thousand contracts). The maximum trading volume was observed on April 11 and made RUR 2.36 billion, while the minimum trading volume (RUR 823.36 million) was registered on April 5.

Corporate bond market. In April, there was observed an insignificant improvement of the overall business situation on the market of corporate bonds. In the beginning of the month, the major development registered on the primary market was the placement of the bonds issued by the city of Moscow and the Moscow oblast. The significant demand for these bonds was determined by the favorable forecast of the key macroeconomic indicators movement and the news about the success of negotiations with the Paris Club with respect to the possibility to repay the Russian debt ahead of the established schedule. The demand not satisfied in the course of auctions facilitated the growth in quotations observed on the secondary bond market.

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