The broad monetary base dynamics indicates that shortly after the crisis there was a sharp reduction in the compulsory reserve fund (due to the mass withdrawals of deposits from commercial banks and the decline in reserve requirements). At the same time, the shares of cash and balances on correspondent accounts of commercial banks in the CBR experienced some growth. Later, the share of cash fell and stabilised at the level somewhat over 50%. With the private clients’ confidence in the banking system was restoring, the share of compulsory reserves was also rising: by the end of 2000 it actually returned to the pre-crisis level (with the level of reserve requirements being lower than before lower).
In the end of the fourth quarter of 2000 there was some decline in the share of deposits and other liabilities (from 20–21% to 15%) along with an increase in the share of cash (from 52–53% to 56-57%). In our view, the latter may be attributed to seasonal factors related to the increase in demand for cash on the eve of end-of-year public holidays. In October and November 2000 the structure of money base was identical to that in June or September 2000.
Therefore, was balances on correspondent and deposit accounts of commercial banks in the Bank of Russia, i. e. non-borrowed reserves that constituted the main source for money base growth in the post-crisis period. The capital is not used for any active transactions (partly, even for settlement and clearing of current clients’ payments)3. In 1999 and 2000, the total share of non-borrowed reserves in the broad monetary base made 30–35%, while in 1997 and 1998 it was at most 15–20%.
The government securities market
In February 2001, it was external factors that mostly affcted the dynamics of quotations of the Russian securities. The currency crisis in Turkey in the second decade of the month provoked a capital outflow from all the emerging markets and induced the fall in the Minfin bonds and eurobonds prices at about two percentage points of face value (see Figs. 1 and 2). However, yet in one or two days the quotation growth renewed and by the end of February prices for the Russian securities returned to the previous level. At the moment, the maximum yield on the Minfin bonds (the 4th issue) fell below 27%, and on eurobonds –to 15% annualised. The yield to maturity on the shortest eurobonds is about 8–8.5% in annual terms.
In late-January and February 2001 the RF Ministry of Finance held three auctions on placement of government short-term bills worth a total of 9 billion rubles, including one issue for non-residents that have their funds placed on the S-type accounts. The average auction yield amounted to 13.5–14% annualised, and to minus 1.37% on the GKOs issued for non-residents (Negative nominal yield on GKOs issued for non-residents are explained by the rule that their purchasers get the right to repatriate amounts, received from selling or maturing the bills, while restrictions on repatriation amounts from the S-type accounts are still in force) At the same time, the average-weighted yield on securities in the secondary market was at the level of 19–20% annualised.
In February 2001, the uncertainty in the economic situation in the USA, Europe and Japan, the drop in international oil prices and the financial crisis in Turkey appeared the most important negative factors affecting the Russian stock market. Nonetheless, in February the drop in stock indexes on the majority of developed and emerging markets did not result in a sharp drop in stock prices in Russia (see Tab.1). Despite the negative influence of external factors, last month the situation on the Russian stock market was quite stable.
In January 2001, the RTS Index grew from 143.29 to 173.53 points, i. e. by 21.1%. During the first half of February the RTS Index grew from 173.53 to 186.74 points, i. e. by 7.6%. In the second half of last month the index began to drop (see Fig. 2). In February, the RTS index fell from 173.53 to 164.76 points, i. e. only by 5.05%. Thus, during the first two months of 2001 the growth in the RTS index was about 15%.
In February 2001, the total turnover in the RTS made up about $420.5 mln. That is at 23.9% superior to the respective index registered in January ($339.5 mln.) and at 70.1% superior to the December level ($247.2 mln.). In February, the share of common stocks of RAO ‘UES Russia’ in the total trade volume in the RTS was 36.8%, the share of ‘LUKoil’ stocks – 13.0%,‘YUKOS’ – 12.3%, ‘Surgutneftegaz’ – 9.7%, ‘Tatneft’ – 6.6%. Thus, in February the total share of the five most liquid stocks in the RTS was 78.4%.
In February 2001, prices for the Russian blue chips dropped (see Fig. 3). During the last month, it was stocks of ‘Rostelekom’ (–19.7%), ‘Surgutneftegaz’ (–16.7%), RAO ‘UES Russia’ (–11.8%), ‘Irkutskenergo’ (–11.3%), ‘Megionneftegaz’ (–11.3%), ‘Sberbank of Russia’ (–10.3%) and ‘LUKoil’ (–6.0%) the quotations of which dropped most significantly.
The most important factors that had a certain impact on the change in prices on the Russian stock market in February 2001 were, as follows:
Firstly, the discussion on restructuring of payments on the Russian debts to the Paris Club has had rather a favorable outcome for the reputation of the Russian financial markets. Rather a hard creditors’ stand with respect to was once again was confirmed at G-7 meeting in Palermo and did not allow the Russian Government to restructure or to write off a part of foreign debt payments in 2001. However, the ‘don’t pay’ option that was subject of an intense political debate in Russia could have resulted in the investment isolation of the country and in an internal political crisis. In spite of some efforts by the leftist factions in the State Duma, in February the amendments to the Federal Budget 2001 Law that implied a redistribution of the additional budget revenues in favour of payments by the state external debts have been passed. Moreover, the Government began to carry out the previously suspend payments by the Paris Club debts right from the moment of passing of the amendments to Federal Budget 2001 Law through the Federation Council. In February Russia repaid to the Paris Club about $1.206 bln. and in March it will pay another $41.5 mln. At their early convenience the Russian Government and the Paris Club should co-ordinate the repayment schedule with regard to the debts accumulated in 2001 ($298 bln.). Moreover, in January and February Russia paid off to the IMF $118.5 mln. and $233.87 mln., respectively. In all, in 2001 Russia has to pay off $3.73 bln. to the Paris Club and about $2 bln. to the IMF.
Thethe IMF mission to Moscow became another important event in February. During the visit the Russian Government and the IMF have co-ordinated annual and quarterly targets and the set of measures for the Government’s economic policy in 2001. Nonetheless, counterparts once again did not arrive to the agreement on concrete measures in the structural policy, namely, in the banking system, natural monopolies, tax and budget areas. The IMF considers these measures as an indispensable condition for granting Russia with the precautionary loan (Precautionary Stand-By Arrangement). This loan may be granted in the case of a substantial worsening of the situation on the financial markets or in the budget sphere.
Secondly, in February 2001, the oil prices in the world commodity markets once again demonstrated a high variability. On the 1st of February the decision on contraction of quote’s adopted by the OPEC on January 17, 2001 (that provided for the decline in oil production at 1.5 billion barrels per day) was put in effect, (),. Consequently, between February 1 to February 8, the quotations of the nearest oil futures (Brent) on the NYMEX grew from 26.46 $/bbl to 30.41 $/bbl, i. e. by 14.9% (see Fig. 5). However, just after the beginning the oil prices started declining and by late-February reached the level of 25.29 $/bbl. Thus, in total for the month they fell by about 4.4%. The threat of a further decline in oil prices influenced by the seasonal factors as well as potential reduction of the demand for oil on the part of the USA and the European countries (due to the envisaged slowdown in their GDP growth rates) forced the OPEC officials to make a number of statements on a new possible quote’s contraction at another one or two million barrels per day. Such a decision can be approved at the next OPEC summit in Vienna, on March 16, 2001.
Thirdly, in February 2001, the situation on the world financial markets was very unstable. As before, investors have been focused on the macroeconomic sphere in the USA. The measures of the US Federal Reserve -- a twice decrease in the level of interest rates in January (see the previous report) became the important reason for speculative moves on the financial markets. Many investors are waiting that the Fed will decrease the interest rates once again, because the last economic indicators testify to a further slowdown of the US economy growth rate. The Fed may decrease interest rates as early as on March 20, 2001. Meanwhile, such a pro- active stand of the US Federal Reserve has some negative outcomes. The major American commercial banks have already declined the volume of loans for enterprises, regardless of the fact that the federal loans for commercial banks currently are more moderate. Most likely, should the level of interest rates in the US economy be unstable, the process of banking loans rationing will continue.
In February the financial crisis in Turkey became another major event related to the situation on the stock markets. Devaluation of lira, foreign capital outflow, crisis in the banking sphere, the sharp drop in prices for assets on the financial markets and the political crisis bore the similarity to the situation in Russia between 1997 to 1998. Nevertheless, considering the unstable situation in the US economy, the current Turkish crisis is not extremely important to international investors. After the 1997–1998global financial crisis, the large international investors have contracted their emerging markets portfolios. This fact significantly declines the probability of export of the Turkish financial crisis to the other emerging markets. However, in February 2001, the growth in the risks level of resulted in a drop in stock prices on both developed and emerging markets (see Tab.1 and Fig.6).
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