In 2010, the Broad Monetary Base in Russia Jumped 26.6%

It should be mentioned that in 2009 the broad monetary base grew 15.9%. As of 1 January 2010, the volume of the broad monetary base amounted to 6.5 trillion Rb.  

As of 1 January 2011, the cash-in-circulation volume, including the cash balances of credit institutions, was 5.8 trillion Rb (+25.1%, as compared to 1 January 2010); the correspondent accounts of credit institutions with the Bank of Russia amounted to 1 trillion Rb (+10.5%); mandatory reserves – to 188 billion Rb (+24.4%); credit institutions’ deposits with the Bank of Russia – to 633.2 bn Rb (+24.4%); and the value of the Bank of Russia’s bonds held by credit institutions – to 588.9 bn Rb (a 2.1-times increase during the course of 2010).  

After the crisis, the monetary base has been growing at an accelerated rate in comparison to Russia’s international reserves. Beside the RF Central Bank’s transactions on the foreign exchange market, the growth in money supply that occurred in 2010 was greatly contributed to by the Reserve Fund being used to finance the budget deficit. In 2010, the amount of money kept in the RF Ministry of Finance’s accounts dropped by 1.7 trillion Rb. The actual monetization of the budget deficit resulted in a significant growth of money supply in the Russian Federation.   

At the same time, monetary base growth was restricted in early 2010 by a reduction in credit institutions’ net debt to the RF CB. However, by the end of the summer of 2010, the net amount of credits granted by the RF Central Bank to the banking sector had dropped to its pre-crisis level. In the remaining months of 2010 it had no significant influence on the revenues and  expenditures of the monetary authorities. Therefore, if Russia’s balance of payments remains in surplus and its budget deficit does not disappear in 2011, the growth rate of money supply can be expected to considerably increase, which will inevitably heighten the risks of inflation.

P.V. Trunin, Candidate of Economic Sciences, Head of Monetary Policy Department