Actuality January 18, 2008

   The Ministry of Finance of Russia plans to begin at Moscow Interbank Currency Exchange (MICEX) holding auctions on investment of available assets of the federal budget on deposits of the Russian commercial banks in spring. Experts consider that the additional source of money will help banks to cope with transition to a quarterly mode of VAT payments. It is expected that in April credit organizations will be able to give back to the budget as taxes minimum RUR500 billion ($20 billion).

   "Weekly auctions on investment of the rest of the federal budget means on deposits of the Russian commercial banks can start on the MICEX in spring 2008", declared Dmitriy Pankin, the director of department of the international financial relations, state debt and the state financial assets of the Ministry of Finance. The mechanism of their holding will be the same, as at the Central Bank at funds attraction for its deposits. According to Mr. Pankin, it is necessary to approve the number of normative documents for the auctions holding in the near future. "We expect to finish this work till the end of February", he promised.

   The idea about investment of available assets of the federal budget in banks became especially relevant in autumn 2007, in the middle of crisis on the international debt markets. Then on certain days the Bank of Russia provided banks up to RUR 300 billion, and the Ministry of Finance promised to join the process of liquidity granting. Meanwhile, its possibilities will be not lower, than of the Central Bank. "Since this year the budgetary code allowed to invest budgetary rests of the Federal Treasury on bank deposits exceeding RUR 1,5 trillion. This money can provide additional inflow of liquidity to the Russian banks which have suffered from global crisis on the monetary market", consider in the Ministry of Finance.

   However, not all banks will get budgetary funds. Despite the fact that the Central Bank still does not disclose criteria of banks admission to auctions (as the first vice-president of the Central Bank Aleksey Uljukaev said earlier, they are only in the process of developing), among the admitted banks there will be no discrimination. The director of department of operations on the open markets of the Central Bank Sergey Shvetsov said that auctions will be held "not on a choice of banks, but on an interest rate choice".

   Market participants expect that new auctions will become the powerful instrument of liquidity regulation. "The budget has more possibilities to influence liquidity than the Central Bank, as the Ministry of Finance provides more than 80 % liquidity sterilization through the mechanism of stabilization fund", the chief economist of Alfa Bank Natalia Orlova explains. The deputy chief of analytical management of investment company Renaissance Capital Aleksey Moiseyev agrees with this statement. "It will allow banks to make more long-term plans", he is sure.

   Experts have noticed that auctions on investing of budgetary funds will be twice as relevant in connection with interval expansion on payments of value added tax. "As the value added tax since this year will be paid not monthly, but once a quarter, in April the requirement for means for VAT payment will make about RUR 500 billion, and such volume can make essential pressure on rates of the interbank market", Natalia Orlova says. At the same time, according to the chief of department of operations with ruble debt instruments ING Wholesale banking Konstantin Kostruba, there is a great probability that the new mechanism will not allow the rates of the interbank market to rise above 8 % per annum as it was in the middle of liquidity crisis. "It will help the Russian market to be less vulnerable to influences of external adverse factors", he considers.