Monetary conditions allow for lowering inflation to 4%

According to the third issue of the Financial Review, 2016 Q3 saw a certain easing in monetary conditions; however, they remain tight enough to ensure inflation decline to 4% by late 2017.

The inflow of budgetary funds into the banking sector in 2016 Q3 exceeded banks’ demand for liquidity and led to a short-term liquidity surplus. The Bank of Russia started to hold one-week deposit auctions instead of repo auctions.

The regulator maintained control over short-term money market rates and kept them close to the key rate in August–September. The Review mentions that the transition to sustainable structural liquidity surplus, which is expected in the beginning of 2017 Q1, will not have a significant impact on the position of interbank lending rates within the Bank of Russia interest rate corridor.

Stable external economic conditions and reduced ruble volatility in Q3 made investments in Russian financial assets more attractive. The ensuing ruble appreciation contributed to inflation decline.