FX borrowings remain cheap in February
According to the 36th issue of Bank of Russia commentary, Banking Sector Liquidity and Financial Markets, the cost of FX borrowings in February 2019 remained low on the back of seasonally high current account inflow amid insignificant foreign currency purchases under the fiscal rule.
Structural liquidity surplus temporarily rose amid the seasonal funds inflow through the budget channel. Furthermore, the surplus increased as banks reduced their balances in correspondent accounts with the Bank of Russia as a result of an outpacing averaging of required reserves. Money market rates held somewhat below the Bank of Russia key rate.
The optimistic sentiment seen in the Russian financial market in January eased somewhat in February. Other emerging market economies faced similar developments as investors had already priced in the softening of the US Fed’s rhetoric and the progress in the trade negotiations between China and the US, while no other significant developments took place. At the same time, foreign investors continued to purchase Russian sovereign bonds in February.
In January — February 2019, rates on bank loans and deposits continued to rise at a moderate pace. The activity in key segments of loan and deposit markets in the opening months of 2019 remained virtually unchanged compared with the end of the previous year.
