Financial markets improved in January

The Russian financial market went into 2018 on a positive note. This was supported by an increased global risk appetite from investors and a continuing rally in the crude oil market. According to the 23rd issue of Bank of Russia commentary Banking Sector Liquidity and Financial Markets, the FX and securities markets saw an inflow of foreign investments into ruble assets.

The spread between short-term interbank lending rates and the key rate widened in January amid high liquidity supply from large market participants and low competition among borrowers. Moving forward, as the banking sector adapts to higher liquidity surplus, it is expected that market rates will gradually approach the key rate of the Bank of Russia.

The dollar liquidity in the FX swap market improved in January after the surge in swap prices during the last days of 2017 due to the ‘end of year’ effect.

As the economic activity expanded and financial position of borrowers improved, the quality of credit portfolios stabilised, which, together with the maintenance of relatively tight non-price lending conditions, ensured gradual and inflationary risk-free recovery of lending activity.

The continuing moderate expansion of banks’ retail credit portfolios shows that households are gradually abandoning the savings-based behaviour model.

The decrease in the Bank of Russia key rate in October and December 2017 translated into credit and deposit interest rates, while the long-term interest rates were also adjusting amid expectations of further key rate decline. Given the situation, the potential for lowering short-term rates in the medium term is greater than for long-term ones.