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The RF Finance Ministry also presented the data on the forecast of key parameters of the debt policy the RF was going to pursue until year 2009. In accordance with the data the Ministry published, the total public debt of the RF should begin to grow in absolute terms starting since 2007; however, in relation to GDP it should continue to decline. According to the RF Finance Minister, the Government Commission of Budgetary Estimates had approved on the whole the debt policy the RF was going to pursue in 2007 through 2009. Thus, the total amount of the public debt should make Rub. 2 trillion 878.9 billion in 2007, whereas in 2008 and 2009 these figures should reach Rub. 3 trillion 30.1 billion and Rub. 3 trillion 246.4 billion respectively.

On the whole, A. Kudrin noted that in 2007 through 2009 the amount of the RF public debt should increase by Rub. 145.1 billion. It was estimated that by the end of 2006 the amount of the public internal debt in state securities would make Rub. 1 trillion 32.1 billion; whereas in 2007, 2008, and these figures should make Rub. 1 trillion 238.7 billion, Rub. 1 trillion 445.6 billion, and Rub. 1 trillion 644.2 billion respectively. The total public debt of the RF should make 10.63 per cent of GDP in 2006, while in 2007, 2008, and 2009 these figures should make 9.78 per cent of GDP, 9.16 per cent of GDP, and 8.71 per cent of GDP respectively.

D. Polevoy.

Monetary Policy In March, in the RF there was registered a decline in the inflation rates: by the end of the month, the value of the CPI was below 0.8 per cent. Money supply continued to increase at a moderate rate, whereas the amount of gold and foreign exchange reserves of the country reached the level of US $ 212 billion by the end of the month. Besides, since May 1, 2006, the Bank of Russia decreased the standards of reservation of funds concerning the foreign exchange transactions related to the inflow and outflow of capitals two times, as well as decreased to the zero value the standards of mandatory sales of foreign exchange denominated proceeds.

In March of this year, the value of the consumer price index made 0.8 per cent (1.3 in March of 2005, see Fig. 1). Similarly to the situation observed in March, the increase in the prices of food products made the most significant contribution in the general growth of prices observed in March: + 1.per cent (as compared with + 2.1 per cent registered in March of 2005). Therefore, in contradistinction to the February situation, where the prices of food products grew at a much faster rate than in February of 2005, in March the prices of food products increased almost two times slower than last year. In March, prices of white sugar (+ 3.2 per cent) and fruit and vegetables (+ 3.2 per cent), cereals and legumes grew at the most rapid rates. It should be noted that the price of white sugar had grown almost 1.5 times since the beginning of the year as a result of a consumer surge observed in the beginning of the year.

The rate of growth in the prices of paid consumer services continued to decline in March and made 0.7 per cent (+ 1.2 per cent in March of 2005). That month, the most significant increase in prices was registered with respect to the services provided by preschool educational organizations (+ 2.1 per cent) and cultural organizations (+ 1.5 per cent). At the same time, in March there was observed a decline in the prices of communication services (- 0.1 per cent). It should be noted that in March the prices of housing and communal services grew by only 0.5 per cent, what was two times below the rates of increase in these prices registered in February.

In March, non-food goods also became more expensive: the prices of such goods grew by 0.4 per cent (as compared with 0.4 per cent registered in March of 2005). The increase in prices of non-food goods was primarily a result of growth in prices of clothing and underwear (+ 0.8 per cent), tobacco products (+ 0.7 per cent), as well as cleaning and washing agents (+ 0.7 per cent). In March, gasoline prices increased by 0.5 per cent.

In March of 2006, the growth in the base consumer price index1 was at 0.7 per cent (as compared with 0.8 per cent registered in the respective period of the preceding year). According to the bulletin of The Base Consumer Price Index (BCPI) is an indicator reflecting the inflation rate on the consumer market. It leaves out of account the seasonal (prices of fruits and vegetables) and administrative (tariffs on regulated types of services etc.) factors, calculated by the Statistics Service of the RF.

model based estimates of short time forecasts of the RF social and economic indicators published by the IET, in April the value of CPI should make 1.4 per cent and 1.2 per cent in May.

The Growth Rate of the CPI in 2002 - 2006 (% per month).

3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% Figure 1.

Source: RF Statistics Service.

In March of 2006, the monetary base of the Russian Federation (in the broad definition2) increased by RUR 60 billion and made RUR 2.72 trillion (+ 2.3 per cent). As on March 1, 2006, the amount of the monetary base of the Russian Federation (in the broad definition) was at RUR 2.66 trillion. Below, the dynamics of the monetary base (in the broad definition) will be analyzed across its components.

The amount of cash in circulation (as adjusted for cash balances of crediting organizations) made RUR 2.06 trillion as on April 1 (+ 1.8 per cent as compared with the level registered on March 1). On the same date, the amount of accounts of crediting organizations with the Central Bank of Russia made RUR 320 billion (+ 3.5 per cent), the amount of mandatory reserves was at RUR 172.1 billion (+ 2.3 per cent), the amount of banks deposits in the Bank of Russia made RUR 44.2 billion (+ 12.2 per cent), the value of the Bank of Russia bonds held by crediting organizations made RUR 115.2 billion (+ 3 per cent), and the funds transferred to the Bank of Russia as the reserves related to foreign exchange operations made RUR 8.3 billion (+ 18.6 per cent).

An increase in the amount of cash in circulation observed this March (+ 1.8 per cent), which was observed simultaneously with the growth in the amount of mandatory reserves (+ 2.3 per cent), resulted in the increase in the monetary base in the narrow definition (cash plus mandatory reserves) 3 by 2 per cent (see Fig. 2). At the same time, in March there was observed a growth in the amount of gold and foreign exchange reserves of the RF Central Bank (+ 5.1 per cent); as a result, the amount of these reserves made US $ 205.9 billion as on April 1, 2006. In the first three weeks of April, the amount of gold and foreign exchange reserves increased by another 2.3 per cent and reached the amount of US $ The RF Monetary Base in broad definition includes, alongside with cash in circulation issued by the Bank of Russia and the Ruble denominated balances of mandatory reserves relating to the borrowings made by credit organizations deposited with the Bank of Russia, also the funds in credit organizations correspondent accounts and banks' deposits with the Bank of Russia.

It should be reminded that the monetary base in broad definition is not a monetary aggregate, but characterizes the liabilities of the Bank of Russia denominated in the national currency. The narrow defined monetary base is a monetary aggregate (one of the characteristics of the amount of money supply) fully controlled by the RF Central Bank.

Jul Jul Jul Jul Jan Jan Jan Jan Jan Oct Oct Oct Oct Apr Apr Apr Apr 212 billion. A significant portion of liquidity entering the country was accumulated in the RF Stabilization Fund. As on April 1, 2006, the amount of the Fund was registered at RUR 1677.4 billion (+ RUR 114.7 billion in comparison with the figures registered on March 1, 2006).

It should be noted that according to the bulletin of model based estimates of short time forecasts of the RF social and economic indicators published by the IET, by the end of April of 2006 the amount of accumulated national gold and foreign exchange reserves should exceed the level of US $ 220 billion.

Changes in the Monetary Base and in the Gold and Foreign Currency Reserves in 2005 - 2006.

1600 Monetary Base (billion rubles) Gold and Foreign Currency Reserves (billion dollars) Figure 2.

Source: RF CB.

In January through March of 2006, the payments pertaining to the RF foreign debt exceeded RUR 81.8 billion. In the 1st quarter of 2006, the repayment of the principal foreign sovereign debt amounted to RUR 39 billion, whereas the payments associated with the servicing of credits made RUR 42.8 billion. The payment of interest on the credits granted to the RF by international financial organizations made RUR 2 billion, while the servicing of credits the RF received from governments of foreign states amounted to RUR 18 billion in January through March of 2006. As concerns the government bonds denominated in foreign exchange, the amount of payments associated with the servicing of this debt reached RUR 22.8 billion.

In March, the RF Prime Minister singed a resolution envisaging negotiations with the Paris Club of creditors on the early repayment of the debt amounting to US $ 12 billion. It should be reminded that over the last year there were already made significant payments relating to the external debt, including early payments to the IMF amounting to US $ 3.3 billion and the Paris Club of creditors amounting to US $ 15 billion.

In accordance with the information presented by the Department of External and Public Relations of the Bank of Russia, in connection with the abolishment of restrictions on foreign exchange transactions planned for January 1, 2007, and in order to achieve the full convertibility of the Russia Ruble, since May 1, 2006, the Bank of Russia decreased the standards of reservation of funds concerning the foreign exchange transactions related to the inflow and outflow of capitals two times, as well as decreased to the zero value the standards of mandatory sales of foreign exchange denominated proceeds.

The RF Central Bank press release indicated that this decision was taken because of the favorable state of the national economy.

P. Trounin billion rubles billion dollars 1-7.09.3-9.11.6-13.04.9-15.06.5-12.01.16-22.03.19-25.05.21-27.07.11-17.08.22-28.09.13-19.10.24-30.11.15-21.12.17-23.02.10-16.03.28.04-4.05.30.06-6.07.27.01-2.02.31.03-6.04.23.02-01.03.Financial Markets In April, no significant changes in the business situation were observed across the key segments of the Russian stock market. Thus, debt markets reacted to the dynamics of US treasury bonds, quotations of which declined over the whole month and in the middle of the month were above the psychologically important level of 5 per cent per annum. Inflationary expectations in the USA, which were determined by a rather positive situation observed on the real estate and labor markets, as well as the new increase in oil prices, persisted as the major factors behind these negative dynamics. The market did not experience an even a sharper growth in yields by the expectations of the end of the cycle of increase in interest rates. All this events were automatically felt on the Russian market, what determined its dynamics within the month. On the foreign exchange market, the Ruble significantly appreciated with respect to the US dollar, what was a result of the US dollar depreciation on the world forex market. As concerns the stock market, it demonstrated a stable growth after the March consolidation.

Prices of many stocks, as well as stock exchange indices, renewed their historical maximums. Such favorable dynamics of stocks reflected the significant increase in the world oil prices, at the backdrop of which there occurred the reevaluation of the fair value of Russian stocks by investors, and the publication of a number of positive corporate news.

The Market for Government Securities Over April, the quotations of Russian forex denominated bonds continued to decline. As earlier, the US state debt market had a significant impact on the dynamics of the Russian segment of the market.

In the beginning of the month there was registered a downward trend in the dynamics of bonds, what completely reflected the situation observed on the market of the US public debt. Yields increased as a result of the publication of data on the stable growth observed in the US economy indicating the probability of intensification of inflationary processes. Comments of FRS representatives that the cycle of increase in interest rates was close to end and the rates were near the upper limit of the neutral band could locally stabilize the market; however, the publication of positive data on the business situation on the labor and real estate markets, as well as the fact that oil prices were close to the August maximum pushed yields of US treasury bonds closer and closer to the level of 5 per cent per annum.

The trends observed on the Russian market were also negative; however, the volatility on this market was significantly below the US indicators.

In the second week of April, the US market experienced a positive adjustment, which, however, failed to produce any significant impact on the Russian segment: the yields of RF Eurobonds continued to grow. Later, the US market was supported by the publication of macroeconomic statistical data and the information about the amounts of securities purchased by nonresidents. Besides, there was published the report about the March meeting of the US FRS, which indicated that interest rates might increase once in May and the probability of the near end of the cycle of increase in the base interest rate. However, there was observed no significant growth of the market, since uncertainty with respect to the policies the FRS was going to pursue persisted, while the report contained a phrase indicating that the regulator was going to take measures basing on the published statistical data, the latest of which confirmed the existence of inflationary risks. At this background, the business situation in the Russian segment did not radically change: Russian securities reacted demonstrating a certain growth, which, however, turned out not to be so perceptible as in other segments of the world Eurobonds market.

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