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The growth, in November of the current year, of the cash-in-circulation volume (+ 0.5 %), with a simultaneous increase in mandatory reserves (+ 3.4 %), resulted in broadening of the narrow monetary base (cash + mandatory reserves)6 by 1.4 % (see Fig. 2). At the same time, the gold and foreign currency reserves of the RF CB also grew in November (+ 1.8 %), amounting, as of 1 December, to $ 168.4 billion. In the first three weeks in December they increased by a further 2.5% and reached the amount of $ 171.3 billion. A considerable portion of the liquid funds flowing into the country was being accumulated in the RF Stabilization Fund, the volume of which, as of 1 December 2005, became 1236.5 billion roubles (+142 billion roubles, as compared to 1 November 2005).

The RFs monetary base in a broad sense, in addition to the cash-in-circulation issued by the Bank of Russia, and the residuals on the accounts of mandatory reserves of the funds in the national currency attracted by credit institutions and deposited with the Bank of Russia, includes the funds in corresponding accounts with credit institutions and bank deposits placed with the Bank of Russia.

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

Jul Jul Jul Jul Jan Jan Jan Jan Sep Sep Sep Sep Mar Mar Mar Mar Nov Nov Nov May May May May It should be noted that, according to the IETs monthly bulletin of modeled short-term forecasts of socio-economic indices in the RF, the accumulated gold and foreign currency reserves in December were to exceed the level of $ 175 billion.

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

1780 1510 Monetary Base (billion rubles) Gold and Foreign Currency Reserves (billion dollars) The RF Ministry of Finance in December this year made payments against the government external debt in the amount of $ 641.81 million. The debt redemption proper amounted to $ 274.33 million, while the interest payments - to $ 367.48 million.

The Bank of Russia, from 2 December 2005, established the following structure if the bi-currency basket for the exchange-rate policy: 40% of the euro and 60% of the USD. Previously, the euro-toUSD ratio in the basket was 35:65.

In late 2005, the information was released that, from the beginning of the year 2006 onward, the publication of data on the RFs gold and foreign currency reserves was to be based on the gold estimations made by the quotations established by the Bank of Russia. Prior to that moment, an arbitrary price was to be applied, equal to 300 USD per 1 troy ounce. According to the information released by the CBs representatives, the changes in the statistical recording procedure were due to the necessity to bring the data being published into conformity with a current situation on the market. It should be reminded that throughout the year 2005 the price of gold was higher than 400 USD per 1 troy ounce.

The Bank of Russia made the decision to lower the rate of refinancing, from 26 December onward, from 13% to 12% per annum. The rate of 13% had been in effect from 15 July 2004. The rate of refinancing at the level of 12% is the record low in the RFs history. At the same time we believe that its lowering will not have any significant effect on the countrys financial market, because at present the rate of refinancing has no influence whatsoever on the economic situation, being, in fact, established in accordance with it.

P. Trunin billion rubles billion dollars 1-7.12.2-8.02.1-7.09.3-9.11.6-13.04.9-15.06.22-28.12.12-18.01.16-22.03.19-25.05.21-27.07.11-17.08.22-28.09.13-19.10.24-30.11.15-21.12.28.04-4.05.30.06-6.07.23.02-01.03.Financial markets In December, the situation on the Russian financial market remained favorable enough. Thus, Russian eurobonds rounded up the month by displaying a small growth, which was partly due to the rise of the RFs sovereign rating to the BBB level, according to the S&Ps agency. The corporate debt market was also in a state of consolidation, which to a certain degree was a reflection of the roubles weakened position in respect to the USD, as well as a consequence of the growing activity on the primary market, which was attracting a substantial volume of money liquidity. Among the main growth factors, the positive adjustment of the oil prices on the international market should be noted, as well as the adoption of amendments to the law On gas supplies, whereby the restrictions were lifted from operations involving the Gazproms shares.

The government securities market Throughout December, the situation on the Russian eurobond market remained sufficiently stable.

Early in the month, the prices of Russian assets were going down, in response to the growth in interest rates on the US bond market after the publication of a number of macroeconomic indices, which demonstrated a sufficiently stable economic growth in the USA, with the probability of a further rise in the rate of discount of the US Federal Reserve Systems (FRS). The investors on the US market responded negatively to the OECDs declaration, which recommended to the US Administration to continue their strategy of increasing the interest rate.

In mid-month, the quotations displayed almost no changes, despite the rather volatile market changes during each day. However, a certain revival of the investor activity was seen after the information was released as to the increased Russias sovereign rating by the S&Ps agency.

As of December 23, the yields to maturity of Russian eurobonds RUS-30 amounted to 5.50% per annum, those of RUS-18 to 5.67% per annum. As of the same date, the yields to maturity of Russian eurobonds were as follows: Tranche 7 of the Minfin bonds 5.37%, Tranche 6 of the Minfin bonds 4.71%, Tranche 5 of the Minfin bonds 5.27%, RUS-07 5.00%.

Early in the month, the government rouble-denominated bond market demonstrated lowering quotations of tradable instruments. This was in part due to the influence of technical factors, after the noticeable market growth in the two preceding weeks. The decline was also a reflection of the overall worsening of the dynamics of prices on the currency debt market, as well as of the rather complex situation as regards liquidity in the banking sector. Later on, a certain stabilization followed, caused by a somewhat improved liquidity in the banking sector, as well as by the absence of any significant fluctuations in the prices on the adjoining segments of the financial market. From mid-month onward, the quotations displayed a gradual growth, due to the RFs increased rating, the roubles strengthening, as well as the favorable dynamics on the debt market in the USA. The restricting factor was represented by the growing rates on the interbank market. A similar situation prevailed until the very end of the month: the changes in the quotations were multidirectional, thereby reflecting the changes on the foreign currency market, the eurobond market, and the liquidity level in the banking sector.

In the period between 1 and 23 December, the aggregate turnover on the GKO-OFZ secondary market amounted to approximately 45 billion roubles, the daily average turnover being at the level of 2.6 billion roubles (about 29.95 billion roubles, with the daily average turnover at the level of 1.billion roubles during the same period in November). Thus, the investors activity in December demonstrated significant growth, as compared to the November indices.

In December, several actions auctions were held for the placement of government bonds. Thus, on 14 December, there was the auction for the placement of OFZ-AD (Issue 46018), the issue volume amounting to 8 billion roubles, while the actually placed volume was equal to 7.998 billion roubles, and the weighted average yield was 6.94% per annum. On 16 December, the auction for the placement of OFZ-AD (Issue 46017) was held, where the issue volume amounted to 2.41 billion roubles, the actually placed volume was equal to 2.198 billion roubles, and the weighted average yield was 6.92% When preparing this overview, the author used, as sources, the analytical materials and reviews issued by the Zenit Bank, the IC ATON, the MICEX and the RF CB, as well as the official web sites of Russian cpmpanies - issuers of securities.

per annum. On 21 December, the auction for the placement of OFZ-PD (Issue 25058) took place, where the issue volume was 3.34 billion roubles, the actually placed volume 1.99 billion roubles, the weighted average yield 6.22% per annum.

FIGURE 1.

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

Yields to maturity of the Russian eurobonds with maturity in 2030, 2018 and 2007 in November - December 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% USD-2030 USD-2007 USD-03.10.05.10.07.10.12.10.14.10.18.10.20.10.24.10.26.10.28.10.01.11.03.11.08.11.10.11.15.11.17.11.21.11.23.11.28.11.30.11.02.12.06.12.08.12.12.12.14.12.16.12.20.12.22.12.03.10.05.10.07.10.12.10.14.10.18.10.20.10.24.10.26.10.28.10.01.11.03.11.08.11.10.11.15.11.17.11.21.11.23.11.28.11.30.11.02.12.06.12.08.12.12.12.14.12.16.12.20.12.22.12.As of 22 December, the GKO-OFZ market volume amounted to 714.09 billion roubles in face value and 718.15 billion roubles in market value. The GKO-OFZ market portfolios duration was 1884.days.

The corporate securities market The situation on the share market.

In December, the Russian share market once again demonstrated a robust growth, thereby creating new record highs of the stock indices. In late November - early December the market was growing due to the background of positive news. The approval in the first reading, by the RF State Duma, of the draft law on the market liberalization of the Gazproms shares, as well as the favorable financial indices reported by the gas monopolist, all promoted the growing demand for its shares.

Later on, until the months last but one week, the market remained in the state of consolidation. The growing oil prices supported the shares in the oil sector, while the fall in the rating of the Uralsviazinform, as reported by the Fitch agency, had a negative impact on the shares issued by telecommunications companies. Technical factors were of significant importance during the months second week:

the market closely approached the MICEX index value of 1000, but failed to go higher, which promoted an increase in the sellers activity. At the same time, the market was saved from further decline by the news from the State Duma concerning the discussion of reform in the electric power sector and the completed process of the making of amendments to the law On gas supplies, whereby the trading of the Gazproms shares was simplified. The increased base interest rate in the USA had no significant influence on the market either, because it had been expected, and, moreover, the appearing commentaries stated a high probability of no further increases in the interest rate. A positive news, as far as the market was concerned, was Russias sovereign rating being increased from BBB to BBB by the S&Ps agency, which had no significant short-term influence, but at the same time kept the market adjustment-free.

FIGURE 3.

100 1 200.1 150.The total volume of trading ($) 1 100.The RTS Index 1 050.1 000.950.900.850.800.750.700.650.600.550.500.450.400.350.During the months penultimate week and up to the years end, the share market continued to grow and reached yet new historic highs. Thus, the RTS index on 22 December, by the tradings end, reached the value of 1028.51 points, which was a record high since the beginning of the trading in the RTS system. Despite an average level of the investor activity, the market was gradually growing. Topoints mln US dollars s 01.11.18.11.06.12.23.12.18.01.03.02.21.02.11.03.29.03.14.04.03.05.20.05.07.06.24.06.12.07.28.07.15.08.31.08.16.09.04.10.20.10.08.11.24.11.12.12.ward the end of the week, the leaders in growth became the Sberbanks ordinary and preference shares, whose growth, although being probably of a speculative character, nevertheless promoted a general market growth.

On the whole, during the period between 1 and 23 December, the RTS index grew by 6.34%, or to 1126.09 points. In the same period, the turnover volume in respect of the shares incorporated in the RTS index was about $ 598.8 million, the average daily turnover being at the level of $ 35,2 million (against $ 710.878 million, with the average daily turnover at the level of $ 7.41 million during the same period in November). Thus, in December a certain decrease in the volume of trading was seen, as compared with the previous month. The indices of maximum and minimum turnovers in the trade system in December were $ 77.0 million (on 2 December) and $ 12.9 million (on 20 December), respectively.

Judging by the months results (from 28 November through 23 December), the rates of the majority of blue chips were growing. The leaders in terms of price growth in December were the shares of the Ukos, the RF Sberbank and the Mosenergo, whose rates during the month went up by 49.22%, 19.37% and 16.67%, respectively. Somewhat lower growth rates were demonstrated by the shares of the RAO UES Russia, the GMK Norilskii Nikel (Nornikel), and the LUKoil, their prices changing by 10.09%, 5.85% and 5.53%, respectively. At the bottom of the list of shares whose process went up in December are the shares of the Surgutneftegas (2.65%) and the Sibneft (2.19%). Negative growth, according to the months results, was demonstrated by the shares of the Tatneft and the Rostelekom, whose prices went down by 1.16% and 3.85%, respectively.

FIGURE 4.

Dynamics of the Russian Blue Chips from November 28 to December 23, 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% Change in price (%) In December. the five leaders in the RTS turnover8 were as follows: the LUKoil (32.15%), the RAO UES Russia (16.42%), the GMK Norilskii Nikel (13.17%), the RF Sberbank (8.00%), and the preference shares of the Transneft (7.5%). Thus, the aggregate share turnover of these three issuers amounted to about 77.77%.

On the classical share market.

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