Growing structural liquidity surplus expected to make no impact on inflation and interest rates

The Bank of Russia has upgraded its assessment of a structural liquidity surplus for the end of 2017. As in previous years, surplus liquidity will be absorbed through BoR deposit auctions and issues of BoR coupon bonds (KOBRs), both intended to limit the impact of a structural liquidity surplus on macroeconomic fundamentals and market interest rates. These findings are reported in the 21st issue of ‘Banking sector liquidity and financial markets’, a regular BoR commentary.

Interbank lending rates mainly remained in the lower range of the BoR interest rate corridor in November; the spread with the key rate grew however smaller. This comes as a result of the banking sector’s continued adjustment to growth in the structural liquidity surplus of recent months.

November this year saw slight loss in the value of the ruble against other emerging market currencies, triggered by a decline in global oil prices.

The OFZ curve was on the rise as a result of major bond purchases by collective investors. This probably does not suggest any substantial change in market players’ expectations.

Both bond and money market players indeed expected the December BoR Board meeting to reduce the key rate. Nevertheless, over a longer time horizon their forecasts are different. Market players' inflation expectations for November were unchanged from the previous month.

22 December 2017

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