Money market rates match 2017 inflation target

In 2017, money market rates predominantly stayed near the Bank of Russia key rate. According to the 22nd issue of Bank of Russia commentary Banking Sector Liquidity and Financial Markets, occasional deviations of money market rates from the target level fostered monetary conditions conducive to keeping inflation close to 4%.

In 2017, the banking sector transitioned to a sustainable structural liquidity surplus. In this context, the Bank of Russia continued to use monetary policy instruments to manage short-term money market rates. As the liquidity surplus expanded, the Bank of Russia gradually raised limits on its deposit auctions and offered coupon-income bonds to absorb excess liquidity.

Overall, the conditions in the foreign currency and stock markets improved. Specifically, the stock market registered a further decline in bonds yields and a pick-up in issuing activity, whereas the FX market saw a reduction in the ruble’s exchange rate volatility and in its dependence on oil prices .

Since late December, both Russian banks and non-residents have been demonstrating an elevated demand for foreign currency liquidity. This led to a drop in ruble rates on FX swaps. In contrast to previous years, there was no perceptible drag from foreign markets during this period.

Even though foreign currency and stock markets saw a recovery in foreign investors’ demand for Russian assets, the main influence on these markets was made by domestic investors.