OREANDA-NEWS. The market-expected average inflation for the next seven years (based on OFZ-IN yield) was down to 4.1%–4.6% from the May reading of 4.5%–5.0% and came close to the Bank of Russia’s inflation target of 4%, as suggested by the data in Release 4 of the Commentary Banking Sector Liquidity and Financial Markets.

As the Bank of Russia reduced its key rate in June by 0.5 pp, key yield curves in the money market and capital market reacted with a slump of a lesser scale, with many market players having expected this decision and factored it in their longer market rates, the commentary notes.

June saw interest rates for interbank lending and ruble repo operations at the level mainly close to the Bank of Russia key rate. The Bank of Russia projects that the current interest rates in the money market will remain within the Bank of Russia’s interest rate corridor into July.

In view of the June decision to set higher required reserve ratios (RRR), it is less likely that the Bank of Russia will hold its weekly deposit auctions in the autumn months of 2016, the commentary says. The new RRR is set to help in seamless transition to surplus liquidity, which is still expected in early 2017.

Brexit was among factors behind the ongoing crossflow of non-residents’ funds  to less risky segments in the Russian stock market as overseas market players bought more OFZ and regional securities in the primary market, the commentary analysts note.

Following the successful placement of the RF Ministry of Finance sovereign bonds in June, the external debt market saw the entry of several Russian corporate issuers with almost $2 billion of new bonds placed.