Signal on the Bank of Russia key rate path is communicated to the market

The Bank of Russia’s signal on the intention to maintain the key rate unchanged till end-2016 caused an upsurge in short-term rates in the money and debt markets. According to the seventh issue of the comment Banking Sector Liquidity and Financial Markets, this was conducive for keeping monetary conditions tight as needed to set inflation on a sustainable downward track.

In September, growth in the banking sector’s demand for liquidity prompted by increased required reserve ratios, was off-set by the Treasury’s operations. In this context, the Bank of Russia mainly held deposit auctions.

The use of deposit auctions to absorb surplus liquidity raised 1-day ruble rates in the money market, bringing them close to the Bank of Russia key rate.

Notwithstanding the expanded range of oil price fluctuations, the volatility of the ruble exchange rate was low in September. A high demand for OFZs and corporate bonds demonstrated by non-residents and Russian banks spurred issuing activity in the debt market.