Volatility in financial markets surges in February
After stabilising in the first half of February, the situation in financial markets continued to worsen on the back of the spreading coronavirus infection outside China, which led to a sell-off of assets. These are the findings provided in the latest issue of the Banking Sector Liquidity and Financial Markets commentary.
The surplus of structural liquidity expanded in February, helped by a temporary drop in the balances of banks’ correspondent accounts with the Bank of Russia. It was somewhat offset by liquidity outflow due to a decline in banks’ debt under Federal Treasury operations, an OFZ placement by the Russian MinFin and an increase in the amount of cash in circulation. The spread between interbank lending (IBL) rates and the Bank of Russia key rate narrowed due to, among other things, the absence of significant liquidity inflow compared to the previous averaging period.
FX swap rates remained largely close to IBL rates as the banking sector’s foreign currency liquidity remained at a comfortable level. This was also supported by the fact that non-residents reduced their long ruble positions and ruble lending correspondingly shrank in the FX swap segment.
The slowdown in corporate lending was mainly of a technical nature, due to the exhaustion of the effect of the re-classification of claims in the beginning of the last year. Retail lending activity continued to decline in January, with consumer and mortgage lending making comparable contributions to the slowdown in the growth of the retail loan portfolio in annual terms. In December 2019, corporate lending rates continued to fall. In January, mortgage interest rates dropped to a new historic low.