Financial sector: modest growth with an eye on risks
As inflation slowed down and expectations of the Bank of Russia’s key rate cut increased, rates in key market segments continued to decline in 2017 Q1. Rate decrease was comparable with inflation reduction. Real interest rates remain positive underpinning the incentive to save and creating conditions for inflation anchoring at a sustainably low level, reads the fifth issue of the informational and analytical material ‘Financial Review: Monetary Policy Environment’.
Overall monetary conditions remain moderately tight. Despite the revival in the Russian economy and decreasing market rates, Russian banks and their customers are still pursuing a prudent financial policy in an effort to avoid risks. Though banks are gradually easing their requirements on borrowers, they still remain rather tough. Demand for loans is still moderate because financially sound borrowers are not seeking to accumulate excessive debts. Households are choosing to save rather than increase consumption. This includes a tendency to refrain from credit and loans. The review notes that in light of this banks’ lending activity is growing slowly without posing inflation risks.
The appreciation of the ruble was deemed one of the reasons behind the ahead-of-forecast inflation reduction in the first quarter. The authors of the review conclude that the key factor behind the growing ruble exchange rate was sizeable sales of FX revenues from exports amid the inflow of foreign currency in the current account and large tax payments due.
The review also describes structural shifts in the Russian financial system. The domestic bond market is developing (both due to the substitution of loans for bonds in banks’ assets and considerable investments in bonds by non-bank investors). Non-bank financial intermediaries are bolstering their positions in the market. Banks are aggressively promoting niche products aimed at specific customers. The review also notes that these developments are making the financial system more complex increasing its resilience to shocks.
