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The most important factors that had a certain impact on the change in prices on the Russian stock market in March 2001 were, as follows:

Firstly, in March there were several important events in the sphere of Russian internal and external policy. In particular, during last month some tension appeared in relationship between Russia and the USA. That manifested itself in a number of official statements of counterparts and also in the reverting expulsion of diplomats. In mid-March the State Duma has considered the non-confidence vote to the Russian Government. In spite of the fact that the non-confidence vote was not passed, the criticism of the Government did not face any response.

After this political turmoil, the failure of the talks between the Russian Government and the IMF on the collaboration in 2001 passed unnoticed. We can consider the failure of talks as a factor which will create difficulties for the three-year agreement between the Government and the IMF. Most likely the counterparts will return to the problems of reforms in the banking system, natural monopolies, tax and budget spheres. However regarding both the forthcoming 2003 when Russia has to pay off a maximum sum by its external debts and a possible worsening of the economic situation, this return will be rather problematic. Moreover, it is necessary to note that should Russia–IMF negotiations on three-year agreement be fruitless, the rescheduling of the Russian debts to the Paris Club in 2003 will be unlikely.

Secondly, in March 2001 the oil prices continued to decline. Though the OPEC decision of January 17, 2001on the reduction in oil output at 1.5 million barrels per day, became effective as of the 1st of February, the price for Brent at the NYMEX fell over February and March from 26.46 $/bbl to 23.78 $/bbl, i.e. by 10.1% (see Fig. 5). At the next OPEC summit in Vienna on March 17, the decision was made on a new reduction (from April 1, 2001) in oil extraction quotes at one million barrels per day (i.e. by 4% of the total oil production by the OPEC).

However, the second reduction in quotes over the year did not induce an increase or stabilisation of oil prices. In March the Brent price at the NYMEX fell by about 6%. The decline in economic growth rates in the USA, Japan and the EU, instability in the world financial markets as well as seasonal factors (the end of heating season) evidently will affect the market for oil in 2001. In this situation, the OPEC policy aimed at reduction in oil extraction quotes could have its negative effects, thus being an additional factor which stimulates reduction in economic growth rates in developed countries.

Figure 5.

Thirdly, in March 2001 the majority of world stock markets showed a fall in assets prices. The pessimism of investors concerning the future macroeconomic situation in the USA provoked a downfall in the US stock markets: for the last month the ‘old economy’ index - Dow Jones Industrial Average - fell by 5.6%, and the ‘new economy’ index - Nasdaq 100 - fell by 16.4%. At the same time, since the beginning of 2001 the Nasdaq 100 has already fallen by 28%, and since early 2000 – by about 55% (see Fig. 6). In March other emerging and developed markets also declined significantly (see Tab. 1).

Last month, the investors’ attention was focused on the FRS actions. On March 20, the FRS Board lowered the basic interest rate on short-term bank credits from 5.5% to 5% annualised. The decision on lowering of interest rate was anticipated by investors, but in the current situation they mostly considered the lowering of interest rate by a half of percentage point rather insufficient. The European Central Bank, which adopted the decision on keeping its refinancing rate unchanged at the level of 4.75% annualised (that was made on March 30), was also criticised, At the same time, more determining FRS actions, e.g. lowering of interest rate at 0.75–1 percentage points, could result in panic in stock markets, since it would demonstrate extremely rapid deterioration of economic climate. Truly, in March an unfavourable economic situation made many big American companies announce a downsizing by 5–10%. However, it is prematurely to argue the start of a recession in the American economy in 2001. According to the IMF estimates, this year the US GDP could rise by about 1.7%. That is twice higher than the expected rate of the Japanese GDP growth in Japan.

Figure 6

Table 1.Dynamics of the Foreign Stock Indexes

as of March 30, 2001


change for last week (%)

change for last month (%)

RTS (Russia)




Dow Jones Industrial Average (USA)




Nasdaq Composite (USA)




S&P 500 (USA)




FTSE 100 (UK)




DAX-30 (Germany)




CAC-40 (France)




Swiss Market (Switzerland)




Nikkei-225 (Japan)




Bovespa (Brazil)




IPC (Mexico)




IPSA (Chile)




Straits Times (Singapore)




Seoul Composite (South Korea)




ISE National-100 (Turkey)




Interbank loan market.

In the first quarter of 2001 the situation in the ruble interbank loan market was rather stable. The level of interest rates (on overnight loans) was about 5% annualised (see Fig. 7). The end-of-month effect in January did not exceed 15% annualised. However, in late February the end-of-month effect coincided with the GKO auction (on February 28), and the interest rates jumped up to 55% annualised, and the daily variation of balances on correspondent accounts of commercial banks in the Bank of Russia amounted to 15 billion rubles (about 20% of the mean volume of balances). However, the boost lasted no more than a week.

In the third decade of March, on the eve of the next GKO auction (on March 21), the rates increased at most up to 15% annualised. The volume of liquidity on correspondent accounts of commercial banks with the Bank of Russia stabilised at rather a high level (80–85 billion rubles).

Figure 7

Foreign exchange market.

In March 2001, the situation at the Russian foreign exchange market was rather stable. Until the end of Quarter the commercial banks’ demand for rubles grew due to the necessity to accomplish tax payments and transfers to the CBR’s compulsory reserve account. As a result, between March 2 and March 23, the foreign reserves of the Russian Central Bank grew from $28.3 bln. to $30.1 bln., i.e. by 6.4%. Nevertheless, speculative attacks against ruble may be renewed as early as in April 2001. Factors that investors consider to be medium-term are as follows.

Firstly, the appreciation of the real ruble exchange rate that has been taking place during last months, now seems to be an obstacle both to for exporters and the Russian Government. An envisaged drop in the economic growth rate in 2001 will compel the Government to undertake a set of measures. From political and economic point of view, it will be easier for the Government to adjust the exchange rate policy in favor of random depreciation of the nominal ruble rate. Apparently, for the Government and the CBR the possible change in the exchange rate policy seems to be more attractive than structural measures on which the IMF insisted. Secondly, the risk of drop in the international oil prices that is related to the continuous worsening of the situation in developed economies, may lead to a decrease in the largest Russian exporters’ profits. Should it happen, the Federal Budget revenues will also drop. Most likely, the drop in exporters’ competitive ability would force them to reactivate the work aimed at deregulation of the internal ‘ruble/dollar’ market. In particular, during the last months there were intensive discussions on employment of some measures, such as the decrease in the rate of compulsory sales of the exporters’ revenues in hard currency on the foreign exchange market from 75% to 50% and the growth in the number of foreign trade operations which are considered ongoing operations (they are not authorized by the CBR). Thirdly, the failure of the talks between the Government and the IMF has diminished chances to reschedule the Russian external debts to the Paris Club in 2002 – 2003.

In February 2001, the official dollar exchange rate grew from 28.37 rubles/$ to 28.72 rubles/$, i.e. by 1.23% (15.85% annualized). The ‘today’ dollar exchange rate in the SELT grew from 28.4453 rubles/$ to 28.6432 rubles/$, i.e. by 0.7%, or 8.68% annualized (see Fig.8). The ‘tomorrow’ dollar exchange rate grew from 28.4665 rubles/$ to 28.6598 rubles/$, i.e. by 0.68% (8.46% annualized).

In March 2001, the dollar exchange rate grew from 28.72 rubles/$ to 28.76 rubles/$, i.e. by only 0.14% (1.68% annualized). The ‘today’ dollar exchange rate in the SELT grew from 28.6432 rubles/$ to 28.7691 rubles/$, i.e. by 0.44% (5.4% annualized). The ‘tomorrow’ dollar exchange rate grew from 28.6598 rubles/$ to 28.7428 rubles/$, i.e. by 0.29% (3.53% annualized).

In March the trading volumes by dollar in the SELT dropped. According to the preliminary estimations, during the last month the overall trading volume by the most liquid ‘today’ and ‘tomorrow’ contracts made up 68.6 bln. rubles and 50.7 bln. rubles, respectively. If so, the total volume of turnover by these contracts in March 2001 should be at about 20.5% inferior to the respective index registered in February.

Figure 8

In March 2001, with investors hesitating regarding the further interest rate policy of the European Central Bank, the ‘euro/dollar’ exchange rate dropped. On March 20, the Federal Reserve decreased its interest rate by only a half of percentage point. Hence, the probability of keeping the CB’s interest rate in Europe unchanged has grown. That manifested itself in a move of the euro exchange rate. Between February 28 and March 30, 2001 the euro exchange rate dropped from 0.9209 $/euro to 0.8821 $/euro, i.e. by 4.2%. Since the very beginning of 2001 the ‘euro/dollar’ exchange rate dropped by 5.9% (see Fig. 9).

In February 2001, the official euro exchange rate grew from 26.0 rubles/euro to 26.22 rubles/euro, i.e. by 0.85% (10.64% annualized). The ‘today’ euro exchange rate in the SELT dropped from 26.4528 rubles/euro to 26.3078 rubles/euro, i.e. by 0.55%. The ‘tomorrow’ euro exchange rate in the SELT dropped from 26.4667 rubles/euro to 26.31 rubles/euro, i.e. by 0.59% (see Fig.10).

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