The Bank of Russia ensures stable interbank rates approximated to the key rate

August saw periods of short-term cash surplus in the banking sector despite the persistent structural liquidity deficit. The Bank of Russia’s deposit auctions allowed banks to deposit surplus liquidity at the rates approximated to the key rate. It ensured formation of stable rates in the money market, says the sixth issue of the comment ‘Banking Sector Liquidity and Financial Markets’.

Liquidity surplus in the banking sector means that funds deposited on credit institutions’ accounts with the Bank of Russia exceed the amount needed for their current operations. However, it is neither indicative of money surplus in the economy nor related to banks’ lending operations, highlights the comment.

In September, banks’ demand for the Bank of Russia’s refinancing is expected to decline somewhat; liquidity inflow through the budget channel will be only partially set off by banks’ higher demand for liquidity following the increase in required reserve ratios. As structural liquidity deficit abates, the Bank of Russia may hold deposit auctions more frequently.

Rates on long-term financial assets showed a more pronounced decline than those on short-term ones, because the Bank of Russia’s moderately tight monetary policy and the August appreciation of the ruble boosted market participants’ confidence in the upcoming slowdown in inflation.

The lower volatility of the ruble exchange rate and the relatively favourable stock market environment boosted foreign investors’ interest in Russian government bonds. Russian banks showed a strong demand not only for OFZ, but also for corporate bonds of reliable issuers.