Russian financial market continues to improve

In February 2018, the Russian financial market showed overall improvement. The Bank of Russia’s decision to cut the key rate, the upgrade of Russia’s sovereign credit rating and growing volatility on global markets had a strong effect on individual market segments, reports the 24^th issue of the Banking Sector Liquidity and Financial Markets commentary.

The market predicted the Bank of Russia’s decision to reduce the key rate by 25 bp, whereas the softer worded press release was less expected by market participants. As a result, market participants revised their key rate estimates for late 2018 down by 25-50 bp. As actual inflation is slowing down, inflation expectations derived from OFZ-IN reduced somewhat.

The negative spread between interbank rates and the key rate narrowed during the February period of required reserves averaging. This resulted from the rising demand and shrinking supply of liquidity in the interbank segment of the money market in the second half of February.

The cost of dollar-denominated borrowings increased somewhat amid the outflow of customer FX deposits.