State to Stop Budget Fund Auctions Til 2009

Russia will stop auctioning temporarily available budget funds to commercial banks until at least early 2009 and use the money to prop up fiscal spending plans instead, a senior Finance Ministry official said.

The move came as oil prices have fallen and budget spending is expected to rise sharply as usual toward the end of the year, when public institutions use up funds to avoid cuts in their budget allocations in the following year.

"During discussions between the ministry and the Central Bank, we took this decision because the fiscal year is coming to an end, and budget funds should go to budget recipients," said Pyotr Kazakevich, the head of the ministry's debt department.

The ministry launched the auctions in April to complement the Central Bank's repo auctions, which serve as the main tool to provide liquidity to commercial banks. The last budget auction was held on Nov. 5.

Commercial banks offering the best interest rates could take budget cash on deposit for a period of up to three months after the auctions.

The Finance Ministry had said the auctions were a temporary solution and would be slowly phased out by the Central Bank's collateral-free loans actions, which started Oct. 20.

"However, we are not completely 'burying' this instrument and may return to it if necessary," Kazakevich said.