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34257

74621

124007

Taxes

40177

86605

144825

Revenues

32667

73598

130479

Expenditure

7510

13007

14347

S. Batkibekov

Monetary Policy

In April ‑ May 2000 the rates of consumer prices growth slightly accelerated (see Fig. 1). In April 2000 the CPI increment amounted to 0.9% (0.6% in March). The highest growth rates were recorded across prices for non-food goods and services – 1.5% and 2.1%, respectively. Prices for food stuffs grew up by 0.3%.

According to preliminary estimates, in May the increment in consumer price index is likely to make up 1.1–1.3%. In our view, the current acceleration of inflation rates could be attributed to following factors. First, in April – May the intensive money issuance, which was has been observed since January 2000 and related to accumulation of foreign reserves by the CBR, began to affect prices. Unless a liquid market for government securities is renewed, the CBR is quite constrained in sterilization of growing money supply. Second, during last several months one could see a gradual increase in real income of population and a decline in wage indebtedness. Hence, the demand constraints have become less tight, and the structure of relative prices for goods was changing towards some acceleration in price growth rate for non-essential goods (non-foods goods, services).

Figure 1.

Figure 2.

By the second decade May 2000, the CBR foreign reserves reached 18.3 billion US$ (see Fig. 2). Thus, at present the reserves cover the volume of import for 7–8 months. That is the highest value of the indicator since 1992 (in 1997 – at most 3.5–4 months). The accumulation of foreign reserves by the CBR was accompanied by an accelerating growth of money base (see Fig. 2). In April the narrow money base grew up by 9.63% (from 318.9 to 349.6 billion rubles), for the first three weeks of May – by yet 3.58%.

S. Arkhipov, S. Drobyshevsky

Financial Markets

The government securities market. A gradual decline in prices was observed in April ‑ May 2000 at the market for the Russian debt securities (see Figs. 1 and 2). Until mid-May, the Minfin bonds fell down to the level of mid-March, prices for eurobonds ‑ to the level of the first half February 2000. Therefore, the quotations of securities lowered at 5–10 percentage points. Prices for eurobonds matured in 2001 are the only stable ones, yields to maturity on that tranche do not exceed 13.2–13.5% annualised.

Figure 1.

Figure 2.

It is evident that one should not expect any considerable increase in prices for the Russian securities during the forthcoming months, given the situation at the world financial markets. The forthcoming rise of the basic rates in the USA, UK and Europe as well as the threat of instability at the world stock market do not favour investments in emerging markets securities. The ongoing quite high political risks in Russia do not allow the assumption of overvaluation of the current level of yields on the Russian debt, despite the tendency towards the rise in the country’s credit rating.

The average level of yields at the GKO-OFZ market currently is about 30–40% annualised, the short-term spot rates (on securities matured in 2000) do not exceed 10–15% annualised. Meanwhile, the liquidity of the secondary market for domestic debt is still extremely low: the weekly turnovers are chiefly at the level of 2–3 billion rubles.

Stock market. In May 2000 the Russian stock market once again demonstrated a dramatic drop in quotations. Between May 6 to May 24 the RTS Index fell from 229 to 167 points, i.e. by 27%. The situation of uncertainty at the US and European financial markets was the main reason for this drop. At the same time, in May one observed a number of strongly positive for the stock market factors: the inauguration of the Russian President, the end of the formarion of the Government; the submission of quite important bills to the State Duma and the growth in Russia’s credit rating. Nevertheless, due to fluctuations at the international financial markets, internal factors have not had any notable influence on investors’ attitudes to the Russian stock market.

On the one hand, it is evident that with volatility at the financial markets of developed countries being high, serious foreign investors usually decrease the volume of their assets at the emerging markets. On the other hand, it is rather striking that domestic investors have focused all their attention rather on daily fluctuations of Nasdaq Composite Index than on the internal situation. It is most likely that in the meantime the Russian stock market remains indifferent to the level of stabilization of major stock indices, the euro exchange rate and the oil price at the international markets, for per se is what matters the fact of stabilization of these rates. It allow the international investors some time to analyze the new situation at the emerging markets and to reallocate their assets.

Figure 3.

In April 2000, the RTS Index dropped insignificantly: from 231.88 to 226.87 points, i.e. by 2.16% (see Fig.3). In mid-May prices for the Russian stocks were falling. As of the third week of May the RTS Index fell to the level of early 2000 (167 – 177 points). However, by late May stock prices grew. According to the preliminary estimations, during last month the RTS Index dropped from 226.87 to 190 points, i.e. by 16.25%.

Some fall in the trading turnover in the RTS, which took place in May 2000 resulted from both the alleviation of the investors’ interest in this segment of the Russian financial market and from a number of holidays in the beginning of the month. According to preliminary estimations, in May 2000, the total turnover in the RTS made about $414 mln. That is at 17.2% inferior to the respective index registered in April (499.4 mln.). Thus, over last month the monthly turnover became minimal for 2000. Nevertheless, the trading turnover in the RTS registered in May 2000 was at about 25% superior to the maximal monthly turnover for 1999 fixed in July.

Due to the drop in the turnover in the RTS in May 2000, the aggregate share of the most liquid stocks in the structure of trades in the RTS has slightly grown compared to the to the respective index registered in the previous month. In particular, during the third week of May, the share of the five most liquid stocks made 80.35% against 76.77% registered in April 2000.

In May 2000, quotations of the Russian blue chips demonstrated the similar dynamics (see Fig. 4). During the month it was stocks of ‘Rostelecom' (–25.56%), ‘Mosenergo’ (–27.26%), RAO ‘UES Russia’ (–28.67%), ‘Irkutskenergo’ (–30.21%) and ‘Sberbank of Russia’ (–30.27%), quotations of which fell most appreciably. Nevertheless, it should be noted that from early 2000 to the present moment the investments in the Russian blue chips are still profitable. In particular, despite of the drop in May, between January to May 2000 the price for common stocks of RAO ‘UES Russia’ grew by 48%, price for ‘LUKoil’ stocks – by 33%, ‘Mosenergo’ stocks – by 32%, ‘Rostelecom’ stocks – by 30%.

Figure 4.

In May 2000, the main factors which influenced the situation at the Russian stock market were related to the situation at the world stock markets. At the same time, one should also note the impact of the internal factors. The latter will undoubtedly influence the domestic stock market over next months.

Firstly, in May 2000, the uncertainty at the world financial markets still was the main factor which induced the fall in quotations of the Russian stocks (see Fig. 5). The rapid changes at the American and European markets brought down an attractiveness of portfolio investments in emerging markets.

As we noted in the previous report, a mismatching between the growth rates in the US and the EC economies as well as a risk of further increase in the US Federal Rate became the reason for negative expectations of investors at the stock markets. On May 16, the FRS raised its discount rate by 0.5 percentage points, up to 6.5% annualized (Last time the FRS discount rate was increased at 0.25 percentage points on March 22, 2000). This measure was expected by investors, however, the risk of raising interest rates in the USA remains still very high. The high rate of the US GDP growth in the 1Q 2000 and a low unemployment rate still bear a threat of inflation. In June the further increase in the FRS discount rate is very likely, which makes both European and overseas investors nervous.

On May 25, 2000, the European Central Bank kept the interest rate on short-term bank credits at the level of 3.75% annualized. One should note that there are different motives in the current FRS and ECB policies. At present the main goals of the European CB are stimulation of economic growth in EC countries and protection of the Euro, on while the contrary, the FRS goals are slowing down the economic growth rate and lowering inflation rates in the US economy. Despite a number of decisions in the field of interest rate policy, the FRS did not succeed in its move. However, the negative consequences of uncertainty about costs of the capital borrowing became evident both to American and European markets. (see. Tab. 1). Thus, the destabilization in the world stock markets, which was sacrificed to the goals of FRS, so far was futile.

Figure 5.

Table 1

Dynamics of the Foreign Stock Indexes

as of May 29, 2000

value

the change in value during the last week (%)

the change in value during the last month (%)

The Dow Jones Industrial Average (USA)

10527.13

1.01%

-1.90%

Nasdaq (USA)

3459.33

9.32%

-8.62%

S&P 500 (USA)

1422.42

3.53%

-1.65%

Bovespa Index (Brazil)

15248.55

12.23%

-1.78%

IPSA (Chile)

99.26

-0.89%

3.45%

Nikkei-225 (Japan)

16228.90

-0.55%

-11.99%

Seoul Composite(South Korea)

691.26

1.69%

-8.15%

DAX-30 (Germany)

7119.26

2.77%

-5.78%

CAC-40 (France)

6325.49

2.88%

-3.61%

Swiss Market (Switzerland)

7754.30

-0.91%

3.02%

FTSE 100 (UK)

6359.60

4.48%

-0.22%

ISE National-100 (Turkey)

15769.47

1.19%

-18.74%

Secondly, the favorable situation at the world oil market in May 2000, had a weak impact on the Russian stock market. At the same time, as one can see in Fig. 4, the prices for the Russian oil companies’ stocks fell to a less extent compared to prices for other liquid stocks.

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