Reporting: Mona Dobrescu*

The third quarter of 2007 saw the slowing of growth in Russian monetary indicators. Broad money growth slowed to 31.6% as of October 1, 2007, and M2 growth was down to 48.3%. According to the Central Bank of Russia, in the third quarter of 2007, M2 growth slowed for the first time after a long period (two years) of accelerating growth but it was faster than the demand for money forecast for 2007 in Guidelines for the Single State Monetary Policy in 2008 (3739%).

The high rates of overall growth in the money supply stimulate the inflationary expectations, while the continued slowing of M2 growth may reduce the risk of inflation by the end of next year (due to the inevitable lags). The reduction of the velocity of money due to the dedollarisation, the expansion of the share of the savings component and the contraction of the share of cash in the ruble supply structure also mitigate the inflationary consequences of growth in the money supply.

* Ms. Dobrescu is in charge of the Eastern European desk at Info Prod since July 2007.