- expenditures of investment nature – by Rub. 193.9 billion in 2007 and by Rub. 133.9 billion in 2008.
Besides, the plan contains the expenditures for the remuneration of employees of the public sector, whose wages and salaries are determined by the Unified Tariff Schedule (UTS), as adjusted for the changes in the procedures governing the indexation of tariff rates pertaining to the remuneration of the employees in the public sector, which should be implemented in two phases in 2006. As a result, for the implementation of these measures there will be additionally allocated Rub. 13.2 billion in and Rub. 8.9 billion in 2008. In accordance with the approved long term financial plan, the amount of the Stabilization Fund make Rub. 2099.2 billion by the end of 2006, whereas by the end of 2008 it should increase up to Rub. 4060.4 billion.
The RF Finance Minister also stated that the approved 3 year long term financial plan should permit to reduce the inflation rates to 5.5 per cent by 2008 in spite of the fact that there might be encountered the risk to fail to reach the targets set by the plan for the end of this year. According to the Minister, the reduction of the inflation rates would create additional incentives for savings and capital formation, increase the quantity of “long money” in the economy, and would facilitate a reduction of the credit rates. The Minister noted that the Stabilization Fund should play a rather important role with respect to the process of reduction of inflation rates both at this moment and later.
In March, there were also made public the comments the RF Finance Ministry made on the dynamics of the tax burden on the economy in the few next years. Thus, in the case the measures the Finance Ministry proposed to undertake with respect to the tax legislation are implemented in 2007 through 2009, the tax burden may be reduced to the level below 27 per cent of GDP. Sergey Shatalov, a deputy of the RF Finance Ministry, stated that in 2005 the tax burden adjusted for the influence of oil prices made 27.4 per cent in comparison with 33.6 per cent observed in 2001. The Deputy Minister reminded that a number of decisions aimed at the reduction of taxes had already been adopted, some of them had entered into force in the beginning of 2006 and some should become effective since January 1, 2007.
Among the latter there were the streamlined and facilitated procedures governing the VAT refunds to exporters, the restrictions on the carrying forward of the losses borne in preceding periods, the revocation of the stipulation concerning the determination of efficiency of results and expenditures for research and development, and reduction of the period to 1 year. It was also planned to start to resolve certain problems relating to the taxation of water and biological resources since 2008.
Besides, S. Shatalov also stated that the RF Finance Ministry considered the possibility of introduction of a lower mineral extraction tax rate with respect to the significantly depleted deposits of mineral resources. The eligibility criteria should be 85 per cent of depletion. Speaking on the possibility to introduce tax holidays with respect to the mineral extraction tax on newly developed deposits in the Eastern Siberia and on the continental shelf, the Deputy Finance Minister noted that such tax holidays should be introduced for a 10 year period since the date of issuance of the extraction licenses starting since 2007. At the same time, as concerned the exploration of deposits of mineral resources, the period of tax holidays could be prolonged taking into account the time required for exploration.
For the purposes of excise taxation, the RF Finance Ministry was also proposing to fix the maximal prices of tobacco products and since January 1 collect excise taxes proceeding from these prices. It was proposed to place the information on maximal prices on the packages of tobacco products. Sergey Shatalov, a deputy of the RF Finance Ministry, stated that it primarily concerned the ad valorem component of the excise on cigarettes. As concerned the possible growth in prices of tobacco products, the Deputy Finance Minister noted that there was expected that the average tobacco prices would not grow more than by 1 ruble across all types of tobacco products. Mr. Shatalov also said that since the excise taxes on tobacco products would be increased by 30 per cent and in 2008 through these taxes would be increased at the rates outpacing inflation about two times.
D. Polevoy Monetary Policy By the end of the period from January till February of 2006, the growth in the Consumer Price Index made 4.1 per cent, what was by 0.3 p. p. above the respective figures registered in the respective period of the preceding year. In March, the gold and foreign exchange reserves of the country exceeded US $ 200 billion. Since March 6, the Bank of Russia has raised interest rates pertaining to the instruments of borrowing of funds of crediting organizations.
This February, the value of the Consumer Price Index was registered at 1.7 per cent (1.2 per cent in February of 2005, see Fig. 1). The increase in the prices of food products made the most significant contribution in the general growth of prices observed in February: + 3 per cent (as compared with + 1.4 per cent registered in February of 2005). Therefore, the prices of food products grew at a much faster rate than in the last year. This increase in prices resulted primarily from the increasing prices of white sugar (+ 30.3 per cent) and fruit and vegetables (+ 12.6 per cent).
In February, the rates of growth in the prices of paid consumer services decelerated and made 1 per cent (as compared with + 2.2 per cent observed in February of 2005). That month, the most significant increase in prices was registered with respect to the services provided by preschool educational organizations (+ 2.7 per cent), passenger transport (+ 1.8 per cent), and health and rehabilitation services (+ 1.4 per cent). No decline in prices across any of the groups of services was observed in February. It should be noted that in February the services provided by the housing and public utilities sector grew only by 1 per cent.
In February, non-food goods also became more expensive: the prices of such goods grew by 0.5 per cent (as compared with 0.3 per cent registered in February of 2005). The increase in prices of nonfood goods was primarily a result of growth in prices of gasoline (+ 1.3 per cent) and tobacco products (+ 0.9 per cent).
In February of 2006, the growth in the base consumer price index1 was at 1.2 per cent (as compared with 0.7 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 March the value of CPI should make 1.8 per cent and 1.5 per cent in April.
The Growth Rate of the CPI in 2002 - 2004 (% per month).
In February of 2006, the monetary base of the Russian Federation (in the broad definition2) increased by RUR 25 billion and made RUR 2.7 trillion (+ 0.9 per cent). As on February 1, 2006, the amount of the monetary base of the Russian Federation (in the broad definition) was at RUR 2.6 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 2.03 trillion as on March 1 (+ 0.8 per cent as compared with the level registered on February 1).
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 Oct Oct Oct Oct Apr Apr Apr Apr On the same date, the amount of accounts of crediting organizations with the Central Bank of Russia made RUR 309.2 billion (- 9.1 per cent), the amount of mandatory reserves was at RUR 168.3 billion (- 1.9 per cent), the amount of banks’ deposits in the Bank of Russia made RUR 39.4 billion (+ 20.per cent), the value of the Bank of Russia bonds held by crediting organizations made RUR 111.billion (+ 47.9 per cent), and the funds transferred to the Bank of Russia as the reserves related to foreign exchange operations made RUR 7 billion (+ 11.1 per cent).
An increase in the amount of cash in circulation observed this February (+ 0.8 per cent) in spite of the decline in the amount of mandatory reserves (- 1.9 per cent), resulted in the increase in the monetary base in the narrow definition (cash plus mandatory reserves) 3 by 1.5 per cent (see Fig. 2). At the same time, in February there was observed a growth in the amount of gold and foreign exchange reserves of the RF Central Bank (+ 4 per cent); as a result, the amount of these reserves made US $ 195.9 billion as on March 1, 2006. In the first three weeks of March, the amount of gold and foreign exchange reserves increased by another 4.3 per cent and reached the amount of US $ 204.1 billion. A significant portion of liquidity entering the country was accumulated in the RF Stabilization Fund. As on March 1, 2006, the amount of the Fund was registered at RUR 1562.7 billion (+ RUR 103.6 billion in comparison with the figures registered on February 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 $ 208 billion.
Figure Changes in the Monetary Base and in the Gold and Foreign Currency Reserves in 2003 - 2004.
1650 1600 Monetary Base (billion rubles) Gold and Foreign Currency Reserves (billion dollars) Source: RF CB.
In January and February of 2006, the payments pertaining to the RF foreign debt exceeded RUR 47.2 billion. In February, the repayment of the principal foreign sovereign debt amounted to RUR 23.billion, whereas the payments associated with the servicing of credits made RUR 23.4 billion. The 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 1-7.09.3-9.11.5-12.01.6-13.04.9-15.06.21-27.07.11-17.08.22-28.09.13-19.10.24-30.11.15-21.12.17-23.02.10-16.03.16-22.03.19-25.05.28.04-4.05.30.06-6.07.27.01-2.02.23.02-01.03.payment of interest on the credits granted to the RF by international financial organizations made RUR 0.8 billion, while the servicing of credits the RF received from governments of foreign states amounted to RUR 17.2 billion in January and February of 2006. As concerns the government bonds denominated in foreign exchange, the amount of payments associated with the servicing of this debt reached RUR 5.4 billion.
Since March 6, the Bank of Russia has raised interest rates pertaining to the instruments of borrowing of funds of crediting organizations: 1 per cent per annum on the deposits on standard terms “tom next,” “spot next,” and “on demand” and 1.5 per cent per annum on “one week” and “spot week.” The raise of the interest rates was caused in order to reduce the inflation rates in the country and became possible because of the changes in the domestic and external economic conditions, including the interest rates policy pursued by the Federal Reserve System of the USA and the European Central Bank.
According to representatives of the Bank of Russia, this decision should affect the cost of money on the financial market and facilitate the moderation of the growth in the money supply. In accordance with the information contained in the RF Central Bank press release, the issues of further increase in interest rates on the instruments serving to withdraw liquidity of crediting organizations will be considered by the Bank of Russia on the basis of a thorough monitoring and analysis of financial and economic situation in the country and abroad. At the same time, it should be noted that at the moment only an insignificant portion of money supply is accumulated on the accounts of crediting organizations with the Bank of Rusia: as on March 1 of this year, on the said accounts there were RUR 39.billion (1.5 per cent of the monetary base in broad definition). Therefore, this measure will hardly have a significant impact on the dynamics of the money supply in the Russian Federation.
P. Trounin Financial Markets In March, the situation on the Russian financial market significantly deteriorated. The debt market was significantly affected by the dynamics of the US government bonds, which declined at the background of expectations of the next raise of the base interest rate. There should be specifically noted the adjustment on the Russian stock market, which had been since long forecasted by analysts after a growth observed over several last months. However, this adjustment was not of significant negative nature, what was in part facilitated by the stabilization and further growth in the world oil prices, as well as a rather favorable business situation observed on the world stock markets.
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