Anticipated growth of liquidity surplus to have no microeconomic implications

The Bank of Russia upgraded its estimate for a structural liquidity surplus as of late 2017 but said the rising growth will have no meaningful impact on the rate of inflation. According to the 18th edition of the ‘Banking sector liquidity and financial markets’ commentary, Bank of Russia operations aimed at absorbing excess liquidity will help offset the macroeconomic impact of surplus liquidity.

Interbank lending rates in August remained in the lower half of the Bank of Russia interest rate corridor. The rates declined as a result of weaker competition among borrowers, triggered by changes in supply and demand for liquidity in the money market.

With financial markets fairly steady throughout August, the ruble's performance was aligned to fundamental factors. As both inflation and market expectations for reduction in the BoR key rate slowed down, government bonds were in demand with foreign investors. At the same time, Russian companies refrained from new issues on expectations for a further decline in the cost of borrowing as inflation stabilises close to the 4% target.