Structural liquidity surplus grows in May after April’s decline
In May, the banking sector’s structural liquidity surplus slightly expanded, which was partially driven by more uniform averaging of required reserves by banks and the redistribution of funds from banks’ correspondent accounts into deposit accounts with the Bank of Russia. These findings are given in the new issue of the review Banking Sector Liquidity and Financial Markets.
The spread between interbank lending rates and the Bank of Russia key rate became negative as a result of the decreased liquidity outflow from the banking sector and the redistribution of funds among banks. The spread in the FX swap and interbank lending segments turned positive. The cost of foreign currency liquidity went down owing to the expansion of foreign currency supply by individual banks.
In May, financial markets in the majority of countries continued to recover amid the slowing spread of the coronavirus pandemic and the starting cancellation of restrictions. Expectations of a gradual revival of economic activity pushed Brent crude prices above USD 35 per barrel, which gave an extra boost to the Russian market.
Market participants’ expectations regarding the key rate slightly lowered even more in May, but not as much as in April. Both analysts and market participants expect that the key rate will be cut to 5.0% per annum at June’s meeting of the Board of Directors and to 4.5% per annum by the end of the year.
In April, the inflow of households’ funds into ruble deposits bounced back after the slowdown in March. Balances in foreign currency deposits continued to shrink. Coupled with the stronger ruble, this contributed to the reduction in the portion of foreign currency deposits in the retail portfolio. In the retail lending market, banks and their clients demonstrated lower risk appetite in April. This significantly decreased activity in this segment, mostly due to consumer lending. Activity in the corporate lending market continued to go up, and most notably in the segment of short-term transactions.
