Central Bank predicted the preservation of the deficit of liquidity until the end of the year

At the end of July the volume of the structural liquidity deficit in the banking system amounted to 1 trillion rubles., according to the Bank of Russia. Last month, banks have placed on Deposit with CB 400 billion roubles, while their debt to the regulator remained at June’s level of 1.4 trillion rubles From the beginning of year the debt of the banking system before Central Bank decreased three times. Thus, according to the regulator, some banks had no need for borrowing and, on the contrary, acted as a lender of placing funds on deposits of the Central Bank and the interbank lending market.

The liquidity deficit in July also affected the outflow of funds (RUB 300 billion) from the banking sector. It was the first time since the beginning of the year, noted in the TSB. “This outflow was offset by a corresponding decrease in balances on correspondent and Deposit accounts of the banks in the Bank”, — stated in the review “the Liquidity of the banking sector and financial markets” the Bank of Russia.

In spite of the shrinking balance between the inflow of funds into the banking sector and banks ‘ debts to the regulator, the Central Bank forecast that the structural liquidity deficit will continue until the end of this year. According to representatives of Bank of Russia, this is due to the seasonal dynamics of cash in circulation, the current practice of financing budget spending, and increased regulations on mandatory reserves for banks.

Earlier, the Central Bank has already taken steps to associate a part of the liquidity entering the banking market because of the costs of the Reserve Fund. In June, the regulator increased the regulations on mandatory reserves on ruble and foreign currency liabilities of banks. “This measure will partially absorb liquidity, and will also contribute to discouraging the growth of foreign currency liabilities in the structure of liabilities of credit organizations”, — explained the regulator. In addition, from 1 September, the Central Bank will reduce correction factors for non-market assets that the banks lay the regulator to attract liquidity. Thus, banks will have to provide the regulator more collateral. Their actions, the Central Bank also explained by the presence in the banking system a significant amount of liquidity.

The concern of the Bank of Russia the growing amount of liquidity in the banking system is linked to the risk that the banking system may be in a situation of structural surplus liquidity. This may cause due to excess money banks will no longer borrow from the regulator and will more actively to place free liquidity on deposits of the Central Bank and the interbank lending market. This in turn will push money market rates down and will lead to cheaper cost of credit. In this case, there is a danger that the availability of credit stimulates the demand for goods will lead to inflation. In addition, the portion of available funds, banks may be sent in the currency market for the speculation that will negatively affect the exchange rate.

The Bank in this situation will actually lose control over the process of liquidity management, so as to not affect the banking sector through the interest rate. “We already have large banks which practically do not depend on resources of the Central Bank and provide a long-term credit resources at a rate even below the Deposit rates of the Central Bank”, — says the analyst of Raiffeisenbank Denis Poryvai. Practically, this means that the regulator loses control over monetary policy.

According to Break, the Central Bank does not account for the funds of banks are correspondent accounts. Meanwhile, according to analyst calculations, in August the banks have accumulated on Bank accounts of Russia for about 1,8-1,9 trln rbl., from this point of view, a structural surplus of liquidity has been achieved, he adds.

The Bank of Russia acknowledged that “the situation of structural liquidity deficit of the banking sector does not preclude the formation of short-term excess funds in the banking sector”. In this case, the Central Bank plans to withdraw part of the excess liquidity through Deposit auctions. In early August the Bank of Russia held the first in the last 1.5 year Deposit auction, taking the market of 100 billion rubles. the auction was attended by 62 the Bank, and proposals from their party exceeded the limit of the Central Bank (100 billion rubles) is almost twice, amounting to 187 billion rubles.

In April, the Bank of Russia sold Federal loan bonds (OFZ) from its own portfolio in the stock market. These operations, the Central Bank used to regulate liquidity in the banking sector. Only the regulator in April-July sold public securities to 132 billion rubles., in fact, having exhausted this resource. According to the Central Bank on August 1, 2016, in its portfolio OFZ bonds remained at 66,49 billion.

Amid the persisting structural liquidity deficit the Bank of Russia expects that by the end of the month, the ruble may remain stable despite fluctuations in oil prices. The dependence of the ruble on the price of oil in recent months has decreased, ascertain in Bank. The course of the Russian currency is not even affected by the fact that in late July-early August, the shareholders had converted the received dividends in dollars and euros. The bulk of these transactions were in the period of active sales of foreign currency by exporters. “As a result, the conversion of dividends into foreign currency had no significant impact on the ruble”, — stated in the review of the Central Bank.

The Bank of Russia believe that the dependence of the ruble, oil prices could remain low until the end of August. An additional incentive to stabilize the Russian currency, the Central Bank believes the absence of the fed’s decision to raise the key rate. Against this background, the strengthening of the dollar against major world currencies and the ruble, the Central Bank is considered less likely compared to the end of June.

“In the short term factor of the structural liquidity deficit may have a stabilizing effect on the exchange rate of the ruble,” agrees Denis Poryvai. More important, however, to maintain the exchange rate, despite fluctuations in oil prices, according to the analyst, remains the inflow of foreign currency into the country, including from non-residents, buying up Russian assets.