OREANDA-NEWS.  Russian banks’ debt on Bank of Russia refinancing operations is set to contract as the Reserve Fund is being spent to finance a budget deficit. However, the sustainable demand for Bank of Russia repo auctions is set to hold, with no need for additional deposit auctions in May, according to the second release of ‘Banking Sector Liquidity and Financial Markets’ commentary.

One-week repo operations will continue to be in high demand including on the back of banks’ partial substitution of loans secured by non-marketable assets for these, as substantial repayments for the former are due in May. Higher required ratios for banks’ forex liabilities come as another key demand driver.

Overnight ruble rates for interbank loans and repos edged down in April as major borrowing banks showed weaker demand for them. May’s overnight rates will most likely remain somewhat lower than the key rate, the commentary notes.

Market participants still expect a softening in the Bank of Russia monetary policy in the course of 2016 as inflation is slowing down and its further decline is expected. This is suggested by the performance of long-term rates in the money and debt markets.

This April’s growth in investors’ risk appetite, along with the rise in oil quotations, helped a stronger demand for Russian financial assets and a strengthened ruble. The gradual decline in ruble exchange rate volatility was ongoing in April, with May on track to show its stabilisation at relatively low levels.