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S. Batkibekov

Monetary Policy

In November 1996 the inflation was 1.9% or 25.3% annualised. In December some decline of the CPI is expected. The price growth will be within 1.0 – 1.5% (12.7 – 19.6% a year). By the end of the year the rate of inflation has increased a little (see fig. 1). The same level of the CPI was observed in April – June 1996. In the very beginning of 1997 a tendency of price growth to accelerate will hold. This fact is caused by the seasonal rise of food prices and the change of some service costs. In January – February monthly inflation amounts to 2 – 2.5%.

As a significant event in November one can note the promulgation of the main principals of monetary and currency policy in 1997 by the Russian Central Bank. The monetary aggregate growth there was limited by 35% against 16% of the annual inflation in 1997. So, the RCB plans in its calculation the further increase of demand for money. According to our estimates this increase should be equal to about 33 percentage points. Moreover, the Central Bank of Russia intends to adhere to the policy of the inclined currency target zone in 1997. The upper border is fixed at 6350 ruble/$ and the lower one – 5750 ruble/$ by the end of the year. As before now the range of the target zone is equal to 600 rubles and the possible increase of exchange rate does not exceed 14.2% a year. However, the RCB does not fix the upper and lower borders on each day. This permits to adjust the exchange rate dynamics during the year more flexible.

The Russian Central Bank again decreased the refinancing rate on December 2. The new rate was set at 48%. At the present moment this decline testifies to the success of the Government to reduce the level of interest rates at the financial sector of economy. Nowadays the refinancing rate determines the upper limit of the interest rates at the government securities market and the interbank credit market. This has become possible after the start of credit mechanism of the banking system by means of the ‘discount window’ and the report operations.

The forecast of GKO-OFZ yields for the first half of 1997 is based on the regression model taking into account the yield to maturity, the inflation rates and the real issue volume of securities for the future period1. To estimate this model we accepted the set of presumptions. They are as follows. First, the inflation corresponds to the official RCB estimate (16% a year or 1.1% a month). Second, the real volume of future GKO issues is fixed as the actual average exceeding of the issued volume over the maturity volume during the autumn of 1996 (7.6%) and the estimate of public debt up to January 1, 1997 (240 trillion rubles). Thus, the actual average increment of the public debt amounts to about 1% a month. According to our calculation, under these presumptions the average yield at the GKO-OFZ market goes down to 32% annualised by the effective interest rate (28 – 29% a year by the MinFin calculation method). The maturity curve is depicted on the fig. 2.

Figure 1.

Figure 2.

Arkhipov S.A.. Drobyshevsky S.M.

Financial Markets.

The market for GKO-OFZ. The government securities market has shown the further consistent price growth in November – December 1996. In particular, in the beginning of November the average-weighted GKO yield to maturity was 52% annualised and up to the last decade of December it declined to 38% a year. The general decrease of yields permitted the Central Bank of Russia to reduce the guaranteed rate of currency yield for non-residents to 13% annualised since December 5.

By the end of November at the GKO-OFZ market there was the quotations growth along with the significant increase of turnovers (see fig. 3). The volume of week turnover at this market rase by 37% (from 15.1 trillion rubles to 20.7 trillion rubles). The total turnover amounted to 77.2 trillion rubles for that month. In the first half of December the turnover of secondary market ranged from 20 to 23 trillion rubles a week. Though, on the eve of holidays some reduce of business activity occured, and in the second half of this month the turnover will not exceed 15 – 19 trillion rubles a week. Thus, in December the expected turnover of secondary market comes to 85 trillion rubles.

In December 1996 four primary auctions passed at the GKO-OFZ market. Four tranches of six-month GKO and one tranche of OFZ were issued. Also, four additional tranches of OFZ ( 24004, 24008, 24009) were placed. The total volume of issued government securities amounted to 32.8 trillion rubles with the average yield to maturity 39.6% annualised. In December on the primary auctions the Ministry of Finance received 27.88 trillion rubles. The initial demand of dealers was 51.27 trillion rubles. This exceeded the supply of bonds by 20.6%.

Stock market. In December 1997 the of the composition of portfolio of the most liquid equities changed seriously. Additionally, since the end of November the bearish tendency of the stock quotations has been dominating. The main reasons are as follows. First of all, by the end of the year the most of traders desired to fix their profits. Second, the foreign investors limited their activity on the eve of holidays. Third, there was the uncertainty about the possible changes among stockholders of some biggest Russian corporations (e.g. Rostelecom). As a result the bargains volume dropped dramatically (see fig. 4 and Tab. 5) and the sharp decline of our calculated stock market index was observed.


Figure 3.

Figure 4.

Table 4. The Stock Market Characteristics for 1.11 20.12.96.

Liquidity (the ratio of number of days in which this stock were traded to the total number of days for the period). RAO UES Russia, RAO UES Russia (preferred), Gazprom, LUKoil, Norilsk Nickel, Rostelecom, Rostelecom (preferred), Surgutneftegas, Surgutneftegas (preferred) – 1,0.

The most beneficial stocks*: Market index – -64.79%, Yuganskneftegas (preferred) – 51.91%, Noyabrskneftegas (preferred) – 46.87%, RAO UES Russia (preferred) – 24.53%, Megionneftegas – 24.24%, Purneftegas (preferred) – 19.42%.

The most riskless stocks (coefficient beta)*: Market risk – 104.67%, S.-Petersburg Telephone – -0.119 (0.686), Krasnoyarskenergo – -0.076 (0.600), Yuganskneftegas – -0.071 (0.714), RAO UES Russia (preferred) – -0.069 (1.0), Chernogorneft – -0.052 (0.514).

The most underevaluated stocks (coefficient alpha)*: Yuganskneftegas (pref.) – 0.013(0.629), Noyabrskneftegas (preferred) – 0.012 (0.429), Megionneftegas (preferred) – 0.011 (0.600), Purneftegas (preferred) – 0.008 (0.829), Krasnoyarskenergo – 0.006 (0.600).

The stocks with the highest unique risk (low R-square)*: Noyabrskneftegas – 0.01% (0.657), Yuganskneftegas (preferred) – 0.02% (0.629), Purneftegas (preferred) – 0.03% (0.829), Gazprom – 0.04% (1.0), Irkutskenergo – 0.05% (0.971).

The stocks with the lowest unique risk (high R-square)*: Yuganskneftegas – 10.33% (0.714), TZUM Trading Centre – 8.39% (0.486), Chernogorneft – 7.96% (0.514), KAMAZ – 7.26% (0.543), S.-Petersburg Telephone – 5.72% (0.686).

Stocks accounted for the most share in the total turnover*: RAO UES Russia – 18.07% (1.0), LUKoil – 16.48% (1.0), Mosenergo – 10.69% (0.971), Gazprom – 7.98% (1.0), Rostelecom – 7.08% (1.0).

* There are the liquidity coefficients in parenthesis

According to our opinion, in the beginning of 1997 the smooth growth of equities’ quotations and the tendency to stability are expected. The decrease of internal political risks and the awarding to Russia the international credit ratings create the significant presumptions for the further enlargement of interest from the side of foreign investors. Moreover, the yield dropping at the GKO-OFZ market will contribute to a switching of attention of Russian capital to the stock market

Interbank credit market. In the second half of November and in December 1996 at the IBC market the tendency of smooth decrease of interest rates was holding on. In particular, the INSTAR on one-week loans decreased from 40% in the middle of November to 32% during the last decade of December (see fig. 5). None the less, the interest rate on overnight loans (which are dominating at the market as before) rase for the same period. It changed from 23% to 35% annualised by the end of the year.

Figure 5.

Figures 6, 7.

The total volume of interbank loans exceeded 38 trillion rubles in November 1996. According to our assessments, the further increase of this indicator is expected by 2 – 3 trillion rubles. Simultaneously, the share of the overnight loans (see figs. 6, 7) became heavier in December.

Foreign exchange market. The rate of depreciation of the ruble did not considerably alter in November – December 1996. The official US dollar exchange rate increased from 5456 to 5508 rubles per $1 in November. That is equal to 0.95% a month, or 12.8% a year. On the MICEX the dollar exchange rate grew up by 1.04% (from 5453 to 5510 rubles/$) and on the interbank currency market – by 1% (from 5461 to 5516 rubles/$). In November the official Deutsche Mark exchange rate decreased from 3609 to 3597 rubles per DM (by 0.33% per month, 3.9% per year). According to our estimates, the official dollar exchange rate will rise to 5560 rubles/$ (by 0.94%) by the end of December. The MICEX ruble exchange rate will reduce by 0.85% (to 5557 rubles/$) and the average interbank exchange rate of ruble – by 0.87% to about 5565 rubles/$. The exchange rate of DM will be 3585 rubles/DM up to the end of December. On the fig.8 there are depicted the trends of the official, the MICEX and the average interbank exchange rates of dollar for November – December 1996.

In November 1996 the gross turnover on the MICEX by the US dollar amounted to 719.4 billion rubles. According to our estimates, in December it increased up to 1.25 trillion rubles.

Figure 8.

Table 5. Indicators of Financial Markets.






inflation rate (a month)


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