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Fifthly, after Christmas holidays a number of key stock markets has demonstrated sharp drop in quotations. Investors’ expectations of a further increase in the discount rate of the US Federal Reserve from February 1 – 2, 2000, led to the growth in the US treasury bonds’ yield. In particular, in early January the yield to maturity by 30-year US treasury bonds grew up to 6.62% annualized. At the same time, prices of stocks at the US markets dropped (see Fig.6). On January 4, 2000, the Dow Jones Industrial Average Index fell from 11357,51 to 10997,93 points, i.e. by 3.17%. Such a sharp drop in quotations was observed at the US market as far back as in autumn 1998. The same problems were in the focus of interest in the Western Europe. On January 13 the fears of growth in inflation rate made the Bank of England increase the interest rate from 5.5% to 5.75%. In January, in United Kingdom and in France stock prices dropped (see Tab.1).

Recently the volatility rate at the major stock markets has grown. That fact makes investors look for alternative ways of portfolio investments. During last month, the level of political risks in Russia fell significantly. Moreover, a progress in negotiations between the Russian Government and international financial organizations and creditors’ clubs is expected soon. That is why the growth of investors’ interest in emerging markets has to directly broach the Russian stock market.

Table 1.

Dynamics of the Foreign Stock Indices

as of January 28, 2000

value

the change in value during the last week (%)

the change in value during the last month (%)

The Dow Jones Industrial Average (USA)

10738.87

-4.56%

-6.49%

Bovespa Index (Brazil)

16734.39

-1.76%

-0.23%

IPC Index (Mexico)

6648.48

-3.52%

-6.65%

Nikkei-225 (Japan)

19434.78

2.95%

3.32%

DAX-30 (Germany)

7066.60

1.06%

3.02%

CAC-40 (France)

5731.05

0.88%

-1.83%

Figure 6.

Interbank loan market. In January 2000 the interest rates on ‘overnight’ interbank ruble credits fluctuated between 5% to 10% annualised (see fig. 7). Such a low level of interest rates is attributed mainly to the surplus of liquidity within the banking system, which was induced by ruble interventions of the Bank of Russia. At the same time, the rise in the IBC interests rates observed in late-December 1999 – first working days of 2000 was directly related to the level of returns on operations at the foreign exchange market, despite the maximum volumes of balances on accounts of commercial banks in the RCB.

The dynamics of balances on corresponding accounts of commercial banks in the RCB between December 1999 to January 2000 clearly demonstrated the results of the Bank of Russia’s operations at the foreign exchange market and the consequences of the change in the reserve requirements for commercial banks. As of the beginning of January 11, 2000, compared to December 31, 1999, the balances grew up almost by 20 bln. rubles (from 69.6 to 88.3 bln. rubles). That figure approximately matches the volume of ruble interventions of the Bank of Russia for the last week of 1999. Since January 11, the RCB increased the reserve requirements from 8.5% to 10% on legal entities’ deposits and from 5.5% to 7% on deposits of physical persons. In addition, the RCB renewed its deposit operations. The actions resulted in the decrease in its foreign reserves and the fall of commercial banks’ balances to the level of 60 mln. rubles.

Figure 7.

Foreign exchange market. In January 2000, the Russian foreign exchange market demonstrated a regular sharp drop of ‘ruble/dollar’ exchange rate. At the very beginning of January, nothing forbids such an appreciable fall in ruble exchange rate. Moreover, on January 5 the official ruble exchange rate dropped from 27 to 26.9 rubles/dollar. Nevertheless, since January 10 the situation at the market has changed drastically. First of all, during the first half of January the dollar supply is traditionally lower than demand for dollars at the market. That is resulting from the fact that after holidays the volume of sales of exporters’ gains decreases. Secondly, in the first half of January there was a sharp growth in balances on commercial banks’ corresponding accounts in the CBR. Thirdly, the necessity to increase the CBR’s foreign reserves to make significant payments on the Russian external debt in the first quarter of 2000 dictated the policy pursued by the Central Bank at the exchange market both in December 1999 and in January 2000. In December, the growing USD supply to the market on the part of exporters, who sell hard currency to make ruble tax payments, did not allow the ruble exchange rate to drop in spite of CBR’s ruble interventions. In January, the situation changed. To save its foreign reserve only during the first two weeks of the month s the Bank of Russia permits the ruble exchange rate to fall by 5.7%.

In December 1999, the official dollar exchange rate grew from 26.42 rubles/$ to 27.0 rubles/$ (see Fig.8). That corresponds to 2.20% a month, or 29.77% annualized. The ‘today’ dollar exchange rate in the SELT grew from 26.5280 rubles/$ to 27.0031 rubles/$, i.e. by 1.79% a month (23.74% annualized). The ‘tomorrow’ dollar exchange rate grew from 26.6110 rubles/$ to 27.0433 rubles/$, i.e. by 1.62% a month (21.33% annualized).

In January 2000, the growth pace of the dollar exchange rate sharply rose up: the official rate grew from 27.0 rubles/$ to 28.55 rubles/$. That corresponds to 5.74% a month, or 95.39% annualized. According to preliminary estimations, in January the ‘today’ dollar exchange rate in the SELT grew from 27.0031 rubles/$ to 28.5497 rubles/$ (as of January 27), i.e. by 5.73% a month (95.10% annualized). The ‘tomorrow’ dollar exchange rate grew from 27.0433 rubles/$ to 28.6287 rubles/$ (as of January 31). That corresponds to 5.86% a month (98.11% annualized).

In January 2000, the trading volumes in the SELT grew insignificantly. According to the preliminary estimations, the overall trading volume of the most liquid ‘today’ and ‘tomorrow’ contracts made up last month 95,570 bln. rubles and 67,198 bln. rubles, respectively. If so, the total volume of turnover by these contracts in January 2000 should be at about 2% superior to the respective index registered in December 1999. According to the adjusted estimations, in 1999 the total trading volume by ‘today’ and ‘tomorrow’ dollar contracts in the SELT made up about 1372 bln. rubles.

Figure 8.

The record drop in the exchange rate of European currency to the level of 0.9878 dollars/euro was registered at the international financial markets on January 28, 2000. However, that did not seriously affect the market of ‘ruble/euro’. According to preliminary estimations, in January the total trading volume by ‘today’ and ‘tomorrow’ contracts in the SELT on euro made up 2134 mln. rubles. That is at about 6% superior to the respective index registered in December 1999.

In December 1999, the official euro exchange rate grew from 26.84 rubles/euro to 27.2 rubles/euro. That corresponds to 1.34% a month (17.34% annualized). The ‘today’ euro exchange rate in the SELT grew from 26.8825 rubles/euro to 27.4241 rubles/euro, i.e. by 2.01% a month (27.04% annualized). The ‘tomorrow’ euro exchange rate grew from 27.0650 rubles/euro to 27.2200 rubles/euro, i.e. by 0.57% a month (7.09% annualized).

In January 2000, due to the drop of euro exchange rate at the international financial markets, the growth pace of Euro to Ruble was inferior to the growth pace of Dollar to Ruble. In particular, in January, the official euro exchange rate grew from 27.2 rubles/euro to 27.98 rubles/euro (see Fig.9), i.e. by 2.78% a month (40.39% annualized). According to preliminary estimations, in January the ‘today’ euro exchange rate in the SELT grew from 27.4241 rubles/euro to 28.5921 rubles/euro (as of January 27), i.e. by 4.26% a month (64.95% annualized). The ‘tomorrow’ euro exchange rate in the SELT grew from 27.2200 rubles/euro to 28.0800 rubles/euro (as of January 31), i.e. by 3.16% a month (45.25% annualized).

Figure 9.

Table 2.

Indicators of Financial Markets

month

September

October

November

December

January*

inflation rate (monthly)

1.5%

1.4%

1.2%

1.3%

3.3%

annualised inflation rate by the month’s tendency

19.6%

18.2%

15.4%

16.8%

47.6%

the RCB refinancing rate

55%

55%

55%

55%

45%

annualized yield to maturity on OFZ issues

76.26%

83.56%

81.10%

65.80%

45%

volume of trading in the secondary GKO-OFZ market a month (billion rubles)

14.64

25.77

10.73

13.15

9.0

yield to maturity on Vneshbonds issues by the end of the month (% a year):

4th tranche

59.5%

60.9%

49.22%

46.64%

40%

5th tranche

33.9%

33.9%

29.77%

27.03%

25%

6th tranche

34.6%

34.4%

28.60%

24.08%

20%

7th tranche

24.0%

23.9%

19.75%

17.65%

17%

INSTAR – MIACR rate (annual %) on interbank loans by the end of the month:

overnight

44.7%

44.0%

47.9%

15.14%

7.5%

1 week

26.3%

16.0%

10.0%%

20.0%

10%

official exchange rate of ruble per US dollar by the end of the month

25.08

26.05

26.42

27.00

28.55

official exchange rate of ruble per Euro by the end of the month

26.46

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