Growth in structural liquidity surplus in October constrained by tax payments

As in September, the inflow of liquidity in October was shaped by the operations of the Banking Sector Consolidation Fund and the Deposit Insurance Agency. However, growth in the structural liquidity surplus was constrained by large tax payments, as was noted in the 20th issue of the commentary ‘Banking Sector Liquidity and Financial Markets’.

Interbank lending (IL) rates remained near the lower bound of the interest rate corridor set by the Bank of Russia. As in previous months, the situation was linked to expanded supply in the IL market explained by large liquidity volumes received by banks in operations with their customers.

In October, the US dollar appreciated against other currencies, whereas the ruble was supported by oil price growth. Decline in the ruble exchange rate volatility to an all-time low also contributed to the appeal of the national currency.

Foreign investors’ interest in Russian assets gradually dissipated, which was in part conditioned on the overall contraction in the demand for emerging markets’ assets. The corporate bonds and shares markets demonstrated better stability.

Persistently low inflation fostered a further decrease in inflation expectations. Market participants also expect a key rate cut by the end of this year.