Bank of Russia expects liquidity surplus to hold

In April, the banking sector continued to experience structural liquidity surplus despite large tax payments and increased demand for cash in the run-up to the early May holidays. Structural liquidity surplus may stand at 0.5 to 1 trillion rubles in late 2017, notes the 14th issue of the commentary, ‘Banking Sector Liquidity and Financial Markets’.

The Bank of Russia’s statements about the likely key rate cut made in April put a downward pressure on interbank lending rates. As they expected rates to go down, banks tried to meet required reserve ratio no earlier than early May.

Despite it having exceeded market participants’ forecasts, the reduction of the Bank of Russia key rate by 0.5 pp in April failed to have a considerable effect on their long-term expectations with regard to interest rates and the exchange rate of the ruble. This might have been a result of the signal in the Bank of Russia’s press release of unchanged prospects for key rate cuts in 2017.

Foreign investors’ demand for OFZ throughout most of April was considerably lower than in the previous month. Short-term growth in purchases was triggered by the Bank of Russia’s statements about the key rate. However, demand for OFZ and their yields returned to their medium level in early May.

18 May 2017

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