Structural liquidity surplus edges lower in September

As the Bank of Russia suspended foreign currency purchases in the domestic market under the fiscal rule, the structural liquidity surplus slightly dropped in September, according to the 31st issue of ‘Banking Sector Liquidity and Financial Markets’, a regular Bank of Russia commentary.

Banks’ growing demand for liquidity was also helped by the mounting amount of required reserves banks must maintain at the Bank of Russia – as a result of increased required reserve ratios under credit institutions’ foreign currency liabilities.

The short-term money market interest rate remained close to the Bank of Russia key rate, with the spread between the two having slightly widened on the back of a of temporary change in the structure of individual money market participants’ transactions. At the same time, a certain improvement with foreign currency liquidity was observed thanks to increased current account revenue and the Bank of Russia's suspension of foreign currency purchases.

The Russian financial market saw a stabilisation in September. It was helped by a recovery in demand for emerging market assets, rising oil prices, and the Bank of Russia’s decision to raise the key rate and suspend foreign currency purchases through the end of the year under the fiscal rule. With the key rate increase coming unexpected for many market participants, their predicted key rate path has shifted upwards by 25-50 basis points.

19 October 2018

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