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Finance Focus: Central Bank Updates Monetary Policy Guidelines
December 14, 2015 13:09

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Russia’s Central Bank has made public its Guidelines of the Single State Monetary Policy for the next three years.
“The Bank of Russia is steering money market interest rates in the presence of the structural liquidity deficit, i.e. the banking sector’s persistent need to borrow from the central bank. Accordingly, the central bank is primarily carrying out liquidity provision operations,” says the report published on the regulator’s website.
The minimum cost of liquidity provision through these operations is pegged to the Bank of Russia key rate. “This makes it possible to establish necessary conditions for credit institutions to redistribute funds in the interbank money market at rates close to the Bank of Russia key rate,” according to the report.
“By the end of 2015, a decrease in the structural liquidity deficit and credit institutions’ outstanding amounts on Bank of Russia refinancing operations may be expected. The Guidelines for Single State Monetary Policy in 2015 and for 2016-2017 assumed that credit institutions’ demand for Bank of Russia refinancing operations would increase by the end of 2015,” reads the official document.
The actual deficit figures deviate from the project due to the impact of a number of liquidity factors. According to the Central Bank, the main source of the growing demand for refinancing by credit institutions would be more cash in circulation.
“However, in the first half of 2015, the amount of cash in circulation fell markedly compared with the same period across several years. This was caused by the overall downturn in economic activity and increase in households’ propensity to save, in part due to the growing appeal of ruble-denominated deposits at banks given the change in deposit rates,” says the paper.
In early 2015, “budget spending rates were elevated, which, combined with certain high-value operations affecting general government accounts with the Bank of Russia, such as the transfer of pension savings to non-governmental pension funds and investment of the National Wealth Fund assets, generated an inflow of liquidity into the banking sector,” runs the report.
The authorities had to use some of the Reserve Fund assets to finance budget expenditure. The Federal Treasury held auctions to place temporarily unallocated federal budget funds in deposits with credit institutions in 2015, easing the impact of changes in intrayear fiscal flows on banking sector liquidity.
By the end of 2015, the excess of general government spending over its income will generate a 2.0-3.0 trillion ruble inflow into the banking sector, according to projection made in the document.

“At the end of the year, the mean spread of the one-day ruble-denominated MIACR to the Bank of Russia key rate will be roughly 20 bp, while money market rate volatility will be 40 bp over this period,” says the report. 

Author: Mikhail Vesely


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