Situation in the financial sphere reflects positive trends in the real economy

Mid-2017 saw an on-going easing of the monetary policy stance on the back of favourable changes in the Russian economy, as evidenced by the last issue of the informational and analytical document ‘Financial Review: Monetary Policy Environment’.

Recovery in domestic demand and growth in economic activity improved the financial situation of companies and households. This helped borrowers to better service their obligations and was duly reflected in the stabilisation of the quality of bank lending portfolios. Moreover, with inflation being close to 4%, the Bank of Russia was able to continue cutting the key rate, and the cost of funding in the economy continued to decrease further. The existing positive dynamics in income and inflation also set conditions for a gradual increase in the confidence of business entities regarding the national economic outlook. The results discussed in the publication include an increase in demand for borrowed funds and a surge in the activity of the lending market despite the persistence of the overall inclination towards a cautious financial policy among creditors and borrowers.

The authors also concluded that this increase in credit activity has not created any pro-inflationary pressure, as the influx of funds in the economy generated by bank credit operations replaced the gradually declining resources caused by sovereign funds spending. The balanced approach to risk assessment currently employed by market participants will continue to foster further growth in lending without elevating risks to price and financial stability.

The gradual adoption of a ‘robust’ and rational financial behaviour pattern by economic agents is also evidenced by the situation in the retail lending. The latter was described at length separately in the document. The authors note a moderate recovery in households’ credit activity prompted by improvements in the economy and stabilisation in the quality of consumer credit portfolios. Owing to the vigilant financial policy pursued by banks and their customers, growth in the volume of consumer lending was well-balanced and did not create any inflationary pressure for the commodities market.