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The Minister also noted that the resolution setting the procedures of administration of the financial resources of the RF Stabilization Fund had been submitted to the RF Government Office. Mr. Kudrin also expressed his full confidence that the financial resources of the RF Stabilization Fund would be completely protected against the human factor and all opportunities for expenditure of these financial resources for unauthorized purposes would be excluded. According to the Minister, the resolution envisaged the transfer of the financial resources of the RF Stabilization Fund to a special account of the RF Finance Ministry with the RF Central Bank; later, the Finance Ministry should determine the basket of currencies, in which the RF Stabilization Fund should be denominated. According to Mr.

Kudrin, the RF Central Bank will administer the financial resources of the RF Stabilization Fund in accordance with the standards set by the RF Finance Ministry. The RF Finance Ministry should determine the currency package, in which the RF Stabilization Fund should be denominated, immediately after the resolution of the RF Government is signed.

The Head of the RF Finance Ministry also summed up the results of the utilization of the RF Stabilization Fund in 2005. Thus, last year the financial resources of the RF Stabilization Fund were utilized for the financing the needs of the RF Pension Fund and repayment of the foreign debt. In particu lar, in order to satisfy the needs of the RF Pension Fund there were transferred Rub. 30 billion in 2005.

Initially, the amount of needs of the RF Pension Fund had been estimated to make Rub. 81 billion. As concerned the payments associated with the foreign debt, in this sphere the financial resources of the RF Stabilization Fund were utilized for the purposes of early repayment of debts to the IMF, the Paris Club, and the debt associated with the foreign exchange denominated credit extended by the Central Bank of Russia in the crisis situation observed in 1998 and included in the framework of the foreign debt. At the same time, according to the statement made by A. Kudrin, the RF Finance Minister, in 2006 Russia was also going to carry out early repayment of debts to the Paris Club member countries amounting to about US $ 11 to US $ 12 billion.

According to Sergey Shatalov, the State Secretary, a deputy of the RF Finance Ministry, the Finance Ministry of Russia on the whole supported the introduction of control of large expenses borne by the citizens after the completion of the tax amnesty. According to Mr. Shatalov, the period of carrying out of the tax amnesty and its conditions are comfortable enough to enable all taxpayers committing tax offences to legalize their incomes and to start later their lives anew. According to the Deputy Finance Minister of Russia, the tax amnesty may be carried out in the period from July of 2006 till May of 2007. After the official launch of the tax amnesty, the idea to reintroduce control over large expenses borne by the citizens should look quite natural. This measure was rather broadly enforced in many developed countries, therefore its introduction should be carried out in compliance with the international practices. The Deputy Finance Minister also noted that he expected that the RF State Duma approved the respective law during its spring session.

According to S. Shatalov, the Deputy Finance Minister, in 2006 and 2007 there was not planned to carry out the indexation of excises on oil products. Besides, in 2007 it was planned to impose excise taxes on oil refineries. Earlier, there had been worked out a methodology resulting in the fact that excises were paid not by producers, but by sellers and resellers, what brought about disproportions in the distribution of revenues among regions. At present, regions are entitled to receive 10 per cent of respective revenues, whereas 50 per cent of collected excises were reallocated via the RF Federal Treasuries. According to Mr. Shatalov, this deformation should be corrected. As concerned the differentiation of excises imposed on oil products, according to Mr. Shatalov it would hardly be carried out this year. The Deputy Finance Minister noted that this differentiation may be carried out in Russia only after there are introduced the European gasoline standards. The Ministry of Industry and Energy promises to introduce the European standards within 2 years, Mr. Shatalov said.

D. Polevoy Monetary Policy By the end of January of 2006, the growth in consumer prices made 2.4 per cent, what was somewhat below the respective figures registered in January of the preceding year. In the beginning of the year the gold and foreign exchange reserves of the country continued to grow and by the end of February exceeded US $ 195 billion. In January, the RF Statistics Service for the first time made public the base structure of consumer expenditures of households to be used for the calculation of the Consumer Price Index in 2006.

In January of this year, the value of the consumer price index made 102.4 (102.6 in January of 2005, see Fig. 1). The increase in the costs of paid consumer services traditionally made the most significant contribution in the growth of consumer prices in the beginning of the year. On the average, these services became more expensive by 6.2 per cent in January. That month, the most significant increase in prices was registered with respect to the housing and communal services (+ 13.8 per cent), services provided by preschool educational organizations (+ 4.3 per cent), and health and rehabilitation services (+ 4 per cent). No decline in prices across any of the commodity groups was observed in January. It should be reminded that in January of 2005 the prices of housing and communal services grew even more significantly: by 19.4 per cent on the average.

In January, there was observed a rather rapid increase in prices of food products: + 2 per cent (+ 1.per cent in January of 2004). Therefore, the prices of food products grew at significantly higher rates in comparison with the figures registered in the preceding year. This development was primarily a result of significant increase in the prices of fruits and vegetables (+ 11.3 per cent) and white sugar (+ 10.7 per cent).

In January, 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 January of 2005). The increase in prices of non-food goods was primarily a result of growth in prices of tobacco products (+ 0.8 per cent), knitted goods (+ 0.6 per cent), clothes and underwear (+ 0.5 per cent), as well as cleaning and washing agents (+ 0.5 per cent).

In January of 2006, the growth in the base consumer price index6 was below 0.8 per cent (as compared with 0.9 per cent registered in the respective period of the preceding year). According to the bulletin of model based estimates of short time forecasts of the RF social and economic indicators published by the IET, in February the value of CPI should make 1.4 per cent and 1.8 per cent in March.

Figure 1.

The Growth Rate of the CPI in 2002 - 2004 (% per month).

3,5% 3,0% 2,5% 2,0% 1,5% 1,0% 0,5% 0,0% -0,5% Source: RF Statistics Service.

In January of 2006, the monetary base of the Russian Federation (in the broad definition7) decreased by RUR 278.1 billion and made RUR 2.6 trillion (- 9.5 per cent). As on January 1, 2006, the amount of the monetary base of the Russian Federation (in the broad definition) was at RUR 2.9 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 trillion as on February 1 (- 8.5 per cent as compared with the level registered on January 1). On the same date, the amount of accounts of crediting organizations with the Central Bank of Russia made RUR 340.1 billion (- 33.1 per cent), the amount of mandatory reserves was at RUR 171.6 billion (+ 6.3 per cent), the amount of banks deposits in the Bank of Russia made RUR 32.8 billion (grew 3.times), the value of the Bank of Russia bonds held by crediting organizations made RUR 75.6 billion 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.

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.

Jul Jul Jul Jul Jan Jan Jan Jan Jan Sep Sep Sep Sep Mar Mar Mar Mar Nov Nov Nov Nov May May May May (grew 1.3 times), and the funds transferred to the Bank of Russia as the reserves related to foreign exchange operations made RUR 6.3 billion (- 28.4 per cent).

A decrease in the amount of cash in circulation observed this January (- 8.5 per cent) in spite of the growth in the amount of mandatory reserves (+ 6.3 per cent), resulted in the decline in the monetary base in the narrow definition (cash plus mandatory reserves) 8 by 0.6 per cent (see Fig. 2). At the same time, in January there was observed a growth in the amount of gold and foreign exchange reserves of the RF Central Bank (+ 8.2 per cent); as a result, the amount of these reserves made US $ 188.2 billion as on February 1, 2006. In the first three weeks of February, the amount of gold and foreign exchange reserves increased by another 3.8 per cent and reached the amount of US $ 195.4 billion. A significant portion of liquidity entering the country was accumulated in the RF Stabilization Fund. As on February 1, 2006, the amount of the Fund was registered at RUR 1459.1 billion (+ RUR 222.1 billion in comparison with the figures registered on January 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 March of 2006 the amount of accumulated national gold and foreign exchange reserves should exceed the level of US $ 200 billion.

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

2100 1600 Monetary Base (billion rubles) Gold and Foreign Currency Reserves (billion dollars) Source: RF CB.

In January of 2006, the payments pertaining to the RF foreign debt exceeded RUR 9.3 billion. In January, the repayment of the principal foreign sovereign debt amounted to RUR 3.2 billion. The payments associated with the servicing of the credits granted to the RF by international financial organizations made RUR 540.3 million, while the servicing of credits the RF received from governments of foreign states amounted to RUR 183.9 million in January of 2006. As concerns the external bond loans of the RF, the amount of payments associated with the servicing of the debt reached RUR 5.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.

billion rubles billion dollars 2-8.06.9-15.03.4-10.08.6-12.10.8-14.12.16-22.02.21-27.04.12-18.05.23-29.06.14-20.07.25-31.08.15-21.09.17-23.11.20-26.01.10-16.02.26.01-1.02.30.03-5.04.27.10-2.11.29.12.05-4.01.billion. At last, the RF domestic state foreign exchange loan bonds were serviced in the amount of RUR 2.5 million.

In February, the RF made payments to the Paris Club member countries totaling to US $ 1.2 billion.

This January, the RF Statistics Service made public the base structure of consumer expenditures of households to be used for the calculation of the Consumer Price Index in 2006. This structure is as follows:

Commodity groups Specific weight, % All goods and paid services Food products 42.Meat products 10.Fish products 1.Butter and oils 1.Milk and milk products 2.Cheese 0.Eggs 0.Confectionary products 2.Tea, coffee 1.Sugar 1.Bread and baked goods 2.Macaroni and cereal products 1.Fruits and vegetables, including potatoes 3.Alcoholic beverages 7.Public catering 2.Other food products 2.Non-food goods 33.Clothes and underwear 5.Furs and fur articles 0.Knitted goods 1.Footwear made of leather, textile, and mixed materials 2.Cleaning and washing agents 0.Perfume and cosmetic goods 1.Small wares 0.Tobacco products 0.Furniture 2.Electrical and other household appliances 2.Printed publications 0.TV and radio appliances 1.Personal computers 1.Communications devices 0.Construction materials 1.Cars 4.Gasoline 1.Medical care products 1.Other non-food goods 3.Paid services 23.Consumer services 2.Passenger transport services 3.Communications services 2.Housing and communal services 8. Housing services 2. Services provided by hotels and other lodgings 0. Communal services 6.Preschool education services 0.Educational services 2.Services provided by cultural organizations 0.Health and rehabilitation services 0.Health care services 1.Other paid services 1.Source: RF Statistics Service.

P. Trounin Financial markets In February, the situation on the Russian financial markets was, on the whole, rather controversial.

On the one hand, the market of Russian rouble-denominated and foreign-currency-denominated bonds, as well as the domestic corporate debt market, approached the months end with negative results, which was in part contributed to by the growing probability of a further growth of the basic interest rate in the USA, due to the increasing inflation risks associated with stable economic growth. On the other, the share market once again demonstrated a high growth rate, resulting from both the rather high international oil prices, coupled with a certain growth on the world stock markets, and the sufficiently positive domestic news concerning the prospects for Russias power engineering to be reformed and for the Sviazinvest to be privatized. Also, the rather favorable situation with the liquidity in the banking sector and the roubles positive dynamics were sources of additional support to the share market.

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