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It should be reminded that the broad monetary base is not a money aggregate, but is a characteristic of the Bank of Russias liabilities in the national currency. The narrow monetary base is a money aggregate (one of the characteristics of money supply volume), fully controlled by the RF Central Bank.

Jul Jul Jul Jan Jan Jan Jan Sep Sep Sep Mar Mar Mar Mar Nov Nov Nov May May May Changes in the Monetary Base and in the Gold and Foreign Currency Reserves in 2003 - 2004.

1480 1450 1420 Monetary Base (billion rubles) Gold and Foreign Currency Reserves (billion dollars) Figure 2. Dynamics of RFs narrow monetary base and gold and foreign currency reserves in 2004 According to the preliminary information released by the Ministry of Finance, in the period from January through April Russia paid, in respect to external debt, a total of 241,3 billion roubles. The redemption of the main sum of external debt amounted to 175.9 billion roubles, of which 98.1 billion roubles was spent on the repayment of the IMFs credits. The redemption of the main sum of credits received by the RF Government from foreign governments amounted to 45.1 billion roubles. The payments for external debt servicing in January through April were equal to 65.4 billion roubles.

The Bank of Russia, from 16 May of this year, established the following structure of the two foreign currencies basket: 30% for the euro and 80% for the USD. It should be reminded that from February the Bank of Russia began to apply, as an operative target for the exchange-rate policy, the value of a foreign-currency basket wherein the euro constituted 10%, and the USD 90%. From March the euros share was increased to 20%. This measure is aimed at decreasing the roubles exchange rate volatility in respect to the currencies if the RFs main partners in trade.

From 1 June 2005, the amendments to the Bank of Russias Provision On mandatory reserves of credit institutions are to come in force, to the effect that credit institutions will have to assume the obligation to average out their mandatory reserves of residuals kept not only on the correspondent account of the head office of a credit institution, but also those on the correspondent accounts of its subsidiaries opened with the Bank of Russia. This measure is in a certain sense equivalent to lowering the requirements for mandatory reserves, which may result in a growth of money multiplier and money supply in the economy.

P. Trunin Financial marketsIn May, the situation on the Russian financial market remained relatively tranquil, which was in part due to the long weekend at the months beginning. The eurobond market displayed a slight growth because of its basic assets favorable dynamics, as well as the conclusion of an agreement with the Paris Club concerning an advanced repayment of a part of the RFs debt in the amount of $ 15 billion.

For the greater part of the month the stock market was characterized by a decreased activity, however This overview is based on the analytical materials and overviews of Bank Zenit, IK ATON, the MICE, the Central Bank of Russia, and the official web sites of Russian corporate issuers.

billion rubles billion dollars 1-7.09.3-9.11.8-14.06.5-11.01.9-15.03.18-24.05.20-26.07.10-16.08.22-28.09.13-19.10.24-30.11.15-21.12.16-22.02.21-27.04.12- the months end investors became somewhat more active. One of the factors suppressing the markets growth was, as before, the situation relating to the rendering of the court verdict in respect to M.

Khodorkovsky, P. Lebedev and A. Krainov. The foreign currency market in May demonsrated a tendency for the strengthening of the USD/RUR (Russian Rouble) ratio.

The government securities market During May, the tendencies for slightly decreasing yields to maturity were visibly prevalent on the Russian eurobond market. Early in the month, the quotations were remaining practically unchanged, however later they began gradually to grow. This growth occurred because, despite the raised basic interest rate in the USA, the probability of any subsequent upsurge in the interest rates later became lower, and all the developing markets, as a result, displayed a growth. After the holidays were over, the situation on the foreign-currency debt market on the whole became somewhat worse, despite a fall in the yields to maturity of the US government bonds. Positive quotation changes could be seen only after the release of information concerning the achieved agreement with the Paris Club as to the advanced repayment of a part of the debt in the amount of $ 15 billion. Growth in prices continued during the third and fourth weeks of May, and resulting were their new record highs. The prices of securities were changing with due regard to the news about the advanced redemption of a part of Russias debt to the Paris Club, as well as with respect to the behavior of US government bonds.

As of 27 May, the yields to maturity of the Russian eurobonds RUS 30 were 5.67% per annum, of RUS-18 5.92% per annum. As of the same date, the Minfin bonds yields to maturity were as follows: Tranche 7 5.65%, Tranche 6 4.19%, Tranche 5 5.23%, and RUS-07 4.49%.

FIG. 1.

Minfin bonds' yields to maturity in March - May 6.5% Tranche 5 Tranche 6 Tranche 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 2.

Yields to maturity of the Russian eurobonds with maturity in 2030, 2018 and 2007 in March - May 7.5% 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% USD-2030 USD-2007 USD-During the first half of the month, investors activity on the rouble-denominated debt market was constantly at a very low level, which resulted in lowered yields of some issues. However, later on the situation began to stabilize: investors activity was growing, which, however, did not result in changes in the then existing levels of prices.

In the period between May 3 and 27, the aggregate turnover on the GKO-OFZ secondary market amounted to approximately 44.67 billion roubles, the average daily turnover being 2.48 billion roubles (in April 133 billion roubles and 7.42 billion roubles, respectively). Thus, the market activity in May went down significantly, as compared to April indices. During the month, two auctions for placing OFZs were held. On 4 May, there was an auction for additional placement of OFZ issue No 25058, the emission volume amounting to 10 billion roubles. The placement volume was 9.47 billion roubles, the average weighted yield being 7.36% per annum. On 18 May, there was an auction for the additional placement of OFZ issue No OFZ-AD 46017 in the amount of 12 billion roubles. The volume of additional placement was about 7.03 billion roubles, the average weighted yield amounting to 8.43% per annum.

As of 27 May, the GKO-OFZ market volume was 621.07 billion roubles in nominal prices, and 603.16 billion roubles in market value. The duration of the GKO-OFZ market portfolio was 1708.days.

The market of corporate securities The situation on the share market.

As of the results of May, the share market showed a slight growth. At the months beginning, the activity on the share market was at a very low level, due to the absence of any significant domestic news and breaks in trading caused by the holidays. After the holidays, the market activity was still low, as a result of the prevailing negative news background the uncertainty as to the merger scheme of Gazprom and Rosneft, the privatization of Sviazinvest, as well as the started rendering of the court verdict in respect to M. Khodorkovsky, P. Lebedev and A. Krainov. An additional downward pressure on the quotations was produced by the closure of the registers of Blue Chip holders, a fall in the international oil prices, as well as the decision of the Moscow Arbitration Court to the effect that more than 62 billion roubles of debt be recovered from Yukos in favor of Uganskneftegaz., the market was displaying quotation volatility. In particular, the market responded favorably to the news that there had been approved the plan for the States share in the Open-End JointStock Company Gazprom to be increased by means of buying-out of shares at their market value, and not through the merger of Gazprom and Rosneft. Early the next week, the market displayed an upward activity surge, in face of which the RTS index mounted higher than 650 points. After this dramatic one-day growth, the market entered a consolidation phase, which continued until the months end.

FIG. 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.FIG. 4.

Dynamics of the Russian Blue Chips from April 27 to May 27, 5.0% 2.5% 0.0% -2.5% -5.0% Change in price (%) points mln US dollars s Tatneft Sibneft GMK LUKoil Russia Russia NorNikel RAO UES Mosenergo Rostelekom Sberbank of Surgutneftegas On the whole, in the period between May 3 and 27, the RTS index went up by 0.3%, which in absolute terms amounted to 2.04 points. During the same period, the turnover of trading in shares quoted by the RTS amounted to about $ 171.8 million, the average daily turnover being at the level of $ 9.million (in April, about $ 318 million, with the average daily turnover of $ 16.7 million). The maximum and minimum turnover indices in the trading system in May were $ 20.6 million (on 24 May) and $1.6 million (on 14 May), as compared to $33.9 million and $7.5 million in April.

According to the months results (from 27 April through 27 May), the majority of Blue Chips displayed a fall in their rate. The leaders in this regard were the shares of Rostelekom (4.43%), followed by Sibneft, Yukos and Surgutneftegaz, falling by 3.54%, 3.45% and 2.12%, respectively.

The shares of the Russian Joint-Stock Company UES Rossii went down in May by 1.52%, of Sberbank of Russia by 1.02%, of Tatneft by 0.61%, and of Mosenergo - by 0.59%. At the same time, the leaders in growth, by the months results, were the shares of Nornikel and LUKoil, their rates having gone up by 3.62% and 1.16%, respectively.

In May, the leaders in the RTSs turnover8 were the shares of RJSC LUKoil (32.96%), UES Rossii (21.67%), GMK Nornikel (6.77%). Besides, by the results of weekly trading during the month, among the leaders in the RTSs turnover were the shares of Surgutneftegaz, Sibneft, Rostelekom and Sberbank of Russia.

As of 27 May, the five capitalization leaders on the domestic share market are represented as follows9: LUKoil $29.76 billion, Surgutneftegaz $25.07 billion, Sibneft $14.22 billion, Nornikel $12.45 billion, Sberbank of Russia- $12.04 billion.

The futures and options market. In May, investors activity on the RTSs futures and options market (FORTS) also became noticeable lower than its April indices. Thus, in the period from 3 through May, the aggregate turnover on the RTSs futures and options market amounted to about 19.68 billion roubles (87.9 thousand deals, 2.33 million contracts) against (25.24 billion roubles, 123.89 thousand deals, 2.93 million contracts) in April.

The highest participants demand was for futures: their trading volume during the period under discussion was 16.43 billion roubles (81.9 thousand deals and 1.94 million contracts). The demand for options was much lower their trading volume amounted to about 3.25 billion roubles (5.98 thousand deals and 384.2 thousand contracts). The maximum trading turnover on the futures and options market was 2.06 billion roubles (on 17 May), the minimum turnover 411.72 billion roubles (on 6 May).

The corporate bond market.

The situation on the market of corporate and regional bonds in May remained, on the whole, stable.

At the months onset, the market was displaying the prevailing tendency for purchasing securities. In part, this was due to the fact that in face of uncertainty on the market this segment of the financial market was regarded by investors as an attractive object for investing their free liquidities. However, against the background of a relatively low activity, the quotations of the instruments traded grew only slightly. The fall in the rouble/USD ratio was also contributing to growing bond yields. At the same time, the agreement with the Paris Club on the advanced repayment of a part of Russias debt did not have any marked influence on quotations. In the second half of the month, the quotations were going down on the corporate debt market; however, later the decline gave way to a growth in process, after the Government had made the decision to purchase for money a bloc of Gazproms shares.

From 3 through 26 May the price index of the corporate bonds traded at the MICE10 went down by 0.14 points (-0.13%), whereas the decrease in the index of the ten most liquid bonds in the corporate sector amounted to 0.17 points (-0.14%). During the same period, the aggregate turnover in the MICEs corporate bond section was about 23.77 billion roubles, the average daily turnover being at the level of 1.32 billion roubles (about 22.49 billion roubles in April, with average daily turnover).

Thus, the volume of trading in corporate bonds issues by Russian companies demonstrated a slight growth, as compared to Aprils indices.

At the classical share market.

According to the RTSs data The calculations were based on indices of the corporate bonds traded on the MICE, as estimated by Bank Zenit.

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