Liquidity surplus to increase by year-end
In the second half of January the banking sector experienced structural liquidity surplus, which by the end of 2017 will go up as a result of financing the budget deficit with sovereign funds. The following months might see a short-term return to the liquidity deficit, says the 11th issue of ‘Banking Sector Liquidity and Financial Markets’, a commentary.
FX buy/sell operations conducted by the Ministry of Finance on the domestic FX market will not have tangible influence on banking sector liquidity and money market rates. The Bank of Russia will effectively balance resulting temporary liquidity inflows/outflows through its auction-based operations.
In the end of January participants of the debt market were concerned about possible ruble depreciation prior to the Ministry of Finance operations and expected more prolonged period of moderately tight monetary policy. Thus, growth of the inflation expectations was limited and they remained at the level seen in December 2016.
All in all, January saw a slight ruble appreciation with low volatility. The appreciation was driven by major sales of export revenues and weakening of the US dollar on the global market. These factors balanced the downward pressure on ruble, caused by the Ministry of Finance announcing additional conversion of oil and gas revenues into foreign currency.
