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However, on January 14, negative tendency has changed, and Euro went up rapidly, having gained 2.7 per cent in Official USD/RUR exchange rate (end of period) Official EUR/RUR exchange rate (end of period) the ten days of the month. Trend change Value of the two-currency basket was the result of successful placement Real effective exchange rate index of ruble (right-hand scale) of debt bonds by Italy and Spain, as well as by positive investors expectations Source: RF Central Bank, authors estimates.

upon the announcement that China Fig. 3. Indicators of Ruble Exchange Rate Dynamics within and Japan are going to buy government January 2005 December bonds in Greece, Portugal and Spain.

On January, the value of the twocurrency basket has continued to downgrade: on January 25, it amounted to 34.67 rubles. (-0.7 per cent as compared to December 31, 2010).

On December 24, 2010 at a meeting of the Board of Directors there was announced on the Conservation of constant refinancing at 7.75 per cent and other operations rates of the Bank of Russia to provide liquidity. This decision was dictated by the central bank, on the one hand, the preservation of key macroeconomic trends and moderate inflationary risks, and on the other hand, by the desire to stimulate economic activity.

At the same time, from December 27, 2010 there have been increased the rates of deposit operations at 0.25 percentage points. We would like to remind, that this is the first tightening of monetary policy since June 1, 2010 The main reason for raising the rates to attract liquidity was, apparently, the acceleration of inflation that began in the last months of the past year.

The next meeting of the Board of Directors is scheduled for January 31, where the issue of raising interest rates will be reconsidered. The Bank of Russia will face a challenge of finding an adequate balance between stimulating economic activity and support of bank lending, on the one hand, and curbing rising inflation, on the other one. Sergey Ignatiev, the Head of the Central Bank does not exclude that after the meeting, the interest rates still will be changed1. In our opinion, the ongoing efforts of the Bank of Russia should be aimed primarily at inflation curbing.

1 RBC News (http://rian.ru/economy/20110124/325731913.html), 24.01.2011.

RUB Jul Jul Jul Jul Jul Jul Jan Jan Jan Jan Jan Jan Sep Sep Sep Sep Sep Sep Mar Mar Mar Mar Mar Mar Nov Nov Nov Nov Nov Nov May May May May May May FINANCIAL MARKET FINANCIAL MARKETN.Burkova, E.Khudko In January 2010, a downward dynamics in the Russian financial market was prevailing at the background of high investors activity. Thus, the RF government securities market has demonstrated for the period from December 21 to January 24, a decline by 34%, the market of corporate bonds - a 29 per cent and futures MICEX market - by 22 per cent. However, there was observed some growth in the value of shares of the majority of the most liquid Russian companies, as well as the major financial indices of the Russian Federation (by 37 per cent). Moderately positive dynamics of key market indicators was continued in the domestic corporate bond market: volume of the market, index of the Russian corporate bond market, bonds yield. The major negative event in January was the aggregation of the situation with the bondholders liabilities performance.

Government securities market At the end of December 2010 reduction in the US and Europe equity markets in view of the publications on negative macroeconomic indicators (such as reduction in orders for durable goods in the US), the international rating agencies lowered ratings of Portugal and Greece as a result of the economic problems in the countries, Christmas and New Year holidays have provoked a decrease in investors activity in the market of government securities. Additional pressure on the market demand had been provided by the information of the Ministry of Economic Development on the inflation acceleration in Russia in November. In this background, Russian securities looked also as unappealing: prices were falling together with the basic assets. In the first half of January, the rise of oil prices in the global market, the positive macroeconomic statistics of the US (reducing the unemployment rate in December, increased sales of new homes in the US in November), China willingness to provide material support to Portugal, increasing the profitability of Russian Eurobonds have contributed to increased market demand for government securities. The peak demand was noted on January 19, when an auction on placement of OFZ in the primary market was held. Given the high level of liquidity and interest to government securities, there were placed 29.81 billion rubles in nominal terms, 2,00% which amounted to about 99.7 per cent 1,90% of placement. However, the decline in 1,80% world oil prices and ruble liquidity in view of expected payments from January 1,70% 20, has resulted in rising inflation and 1,60% significant capital outflow from Russia 1,50% as of 2010 result, which has resulted in 1,40% a decrease in activity in the secondary 1,30% market for government securities.

1,20% As of January 24 of the current year, Tranche 1,10% the Russian Eurobonds RUS-28 yield to maturity has decreased as compared with the level of December 05 from 5.to 5.87 per cent per annum (by 0.per cent), RUS-18 from 4.57 to 4.per cent per annum (by 1.95 per cent), Source: Finmarket Information Agency data.

RUS-30 4.9 to 4.78 per cent per annum Fig. 1. Minfin bonds yields to maturity (by 2.33 per cent), RUS-20 from 5.in November 2010 January to 5 per cent per cent per annum (by 1.1 In the course of preparation of the survey, there were used analytical materials and surveys published by the Interval, MICEX, RTS, RF Central Bank and the materials presented at web sites of Russian issuing companies.

01.11.04.11.09.11.12.11.17.11.22.11.25.11.30.11.03.12.08.12.13.12.16.12.21.12.24.12.29.12.11.01.14.01.19.01.24.01.RUSSIAN ECONOMY: TRENDS AND PERSPECTIVES 6,50% per cent) and RUS-15 from 3.61 to 3.per cent (by 0.91 per cent). In the same 6,00% period, a similar trend was observed 5,50% in the yields of external currency debt bonds. Thus, the yield to redemption of 5,00% the seventh tranche of external currency 4,50% debt bonds has decreased from 1.79 to 4,00% 1.29 per cent per annum (by 28.24 per cent). Herewith, on the first working 3,50% day of 2011 (January 11, 2011), there 3,00% was observed a significant a significant decreased trend of those Eurobond yield 2,50% (see Figs 1- 2).

Within the period from December to January 24, 2011, the total turnover of the secondary market of government RUS-2030 RUS-2018 RUS-bonds amounted to approximately RUR RUS-2015 RUS-81.97 billion with an average daily turnover of RUR 4.31 billion (about Source: Finmarket Information Agency data.

RUR 111.28 billion with an average Fig. 2. Yields to maturity of the Russian Eurobonds with maturity daily turnover of RUR 6.55 billion in in 2010, 2015, 2018, 2020, 2028 and 2030 in November December), which means a significant January decrease of an average monthly turnover by 34 per cent.

As of January 24, the volume of government bonds market made RUR 2,042.99 bn at face value and RUR 2,053.29 bn at the market value (as compared with RUR 1,916.63 bn and RUR 1,925.39 bn accordingly as of December 20). The duration of the government bonds market portfolio was 1,339.7 days, having decreased by 37.36 days as compared with the preceding month (as of December 20).

Stock market Stock market situation In late December 2010 a negative USA macroeconomic statistics, the economic problems of Greece and Portugal, as well as the closure of USA and Europe equity markets in connection with Christmas holidays, have led to reduced activity of the participants and the RF stock market. With the start of trading in the new year, the stock market showed a marked increase due to the rising global commodity prices observed in the first half of January, the positive financial results of a number of major international companies, the relative stabilization of the economic situation in Portugal, the economic growth in China. In addition, the information of the Ministry of Economic Development of Russia on the Russian GDP growth in January-November 2010 by 3,7 per cent as compared with the same period of 2009, preservation of the RF CB refinancing rate at 7.75 per cent also supported the stock quotes of the majority of the most liquid Russian companies and urged their growth in the range from 3 to 13 per cent. However, inflation growth, reduction of the trade surplus of the Russian Federation, according to the RF CB within November 2010 by 5,3 per cent to USD 10.86 billion (as compared with November 2009), revocation of licenses from a number of banks, decreased credit rating of the Bank of Moscow by Moodys Investors Service by one level - from Baa1 to Baa2 with a negative outlook were restraining the growth of the stock market.

The maximum value within the month the MICEX index has reached on January 17, having reached 1,771.66 points (1,676.41 points in the preceding month). The minimum value for the period the MICEX index has reached on January 11 1,713.97 points (against 1,601.76 points in the preceding month) (See Fig. 3).

In general, within the period from December 21 to January 24, the MICEX index has increased by 3.46 per cent, what makes about 57.59 points in absolute terms (within the year, from January 24, 2010 through January 24, 2011, the MICEX index has been upgraded by 21.01.11.04.11.09.11.12.11.17.11.22.11.25.11.30.11.03.12.08.12.13.12.16.12.21.12.24.12.29.12.11.01.14.01.19.01.24.01.FINANCIAL MARKET per cent). Within a month, the 120 1 800,The total volume of trading (roubles, billion) turnover of trades in securities MICEX Index 105 1 600,included in the MICEX index made about RUR 822.36 bn at an 90 1 400,average daily turnover of RUR 75 1 200,43.28 bn (against about RUR 1,038.73 bn with an average daily 60 1 000,turnover of RUR 61.1 bn in the 45 800,preceding period). Therefore, the investors average daily activity 30 600,in the stock market in January 15 400,has decreased as compared with the preceding period by 29 per 0 200,cent. The indicators of maximum and minimum daily turnover in the market trades made, accordingly, RUR 73.04 bn (as of January 12) and RUR 48.48 bn Fig. 3. Dynamics of MICEX Index and trading volume (on January 14).

As of the month results (from 15,0% December 21 through January 24), Change in price (%) the majority of the blue chips 12,5% securities have shown a growing dynamics. The leaders in the 10,0% growth were by Rostelecom and 7,5% GMK Nornickel, having increased by 12.95 and 12.61 per cent, 5,0% accordingly. They were followed by Tatneft securities, which increased 2,5% by 10.6 per cent, Rosneft (+10.per cent), Surgutneftegaz (+10.01 0,0% per cent). Significantly lower rates -2,5% of growth were demonstrated by LUKOIL (+7.59 per cent), -5,0% VTB Bank (+4.8 per cent) and Mosenergo (+0.06 per cent) and Gazprom Neft (+3.07 per cent). A reverse trend was demonstrated by Gazprom, Sberbank of Russia and Mosenergo securities, the value of which has decreased by 3.31 per cent, 2.57 per cent and 2.5 Fig. 4. Dynamics of the Russian Blue Chips from December 21, 2010 to January 24, per cent, accordingly (See Fig. 4).

In January of the current year the MICEX turnover leaders were: Sberbank of Russia (26.35 per cent of the total turnover), Gazprom (20.12 per cent), GMK Nornickel (8.57 per cent), LUKOIL (7.11 per cent) and Rosneft (6.93 per cent). The total volume of transactions with the shares of those five blue chips was about 75 per cent (of all blue chips - 69 per cent) of the total trades in shares at the MICEX stock market over the period from December 21 through January 24.

According to MICEX information, as of January 24, the top five leaders of the domestic stock market in terms of capitalization were: Gazprom RUR 4,507.91 bn (RUR 4 507,91 4,587.45 bn as of December 20), Rosneft RUR 2,569.1 bn (against RUR 2,328.74 bn), Sberbank of Russia - RUR 2,250.22 bn (against RUR 2,281.31 bn), LUKOIL - RUR 1,612 (against RUR 1,487.72 bn) and GMK Nornickel RUR 1,426.2 (against 1,279.06 bn rubles).

points roubles, billion 02.11.24.11.15.12.13.01.03.02.26.02.19.03.09.04.30.04.25.05.16.06.07.07.28.07.18.08.08.09.29.09.20.10.12.11.02.12.23.12.24.01.LUKOIL Tatneft Rosneft Bank VTB Gazprom Mosenergo Rostelecom Gazprom neft Surgutneftegas GMK Nornikel Sberbank of Russia RUSSIAN ECONOMY: TRENDS AND PERSPECTIVES Futures and Options Market In January the average daily turnover in the MICEX futures market has decreased by 21.per cent as compared with the preceding month. Thus, in the period from December 21 through January 24 the total turnover in the MICEX (futures) market made approximately RUR 133.33 bn (484.94 thousand of transactions, 3.06 mln of contracts) with an average daily turnover of RUR 7.02 bn against about RUR 151.92 (327.94 thousand of transactions, 3.69 mln of contracts) with an average daily turnover of RUR 8.94 bn in December. The largest volume of trading in January, like a month before, was observed in contracts for futures and equity instruments, amounting to RUR 73.62 billion (454.48 thousand of transactions, 1.36 mln of contracts). Herewith, in terms of the trading volume in this section, the MICEX derivatives market after the settlement of futures contracts for the MICEX index are followed by the futures supply contracts for the shares of Nornickel, Sberbank, Gazprom, and LUKOIL. We would like to note, that the value of the MICEX index (the price of transactions) for March 2011 was at the level of 1,670 1,770 points and for June 2011 at 1,6801,780 points.

The second place in terms of trading volume within the month of January was taken by foreign currency futures (RUR 56.13 bn). Herewith, contracts for Euro against US dollar were in the first place in terms of trading in the MICEX futures market, followed by futures contracts for USD rate and for Euro/RUR rate. It is worth noting that prices of futures contracts, concluded in January for RUR/USD futures in the MICEX market were within RUR/USD 29.930.9 for March 2011, and RUR/USD 30.231.2 for June 2011. Trading volume in futures for commodity assets within the period under review has made RUR 3.08 bn. Besides, in January there was one contract for the interest rate for the amount of RUR 500 mln.

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