OREANDA-NEWS. Banks’ demand for the Bank of Russia’s refinancing operations did not change considerably in July. The fifth issue of the comment ‘Banking Sector Liquidity and Financial Markets’ notes that the banking sector saw liquidity outflow as of the month-end for the first time since the beginning of the year.

Given the seasonal dynamics of cash in circulation, budget expense financing and the upward revision of required reserve ratios, structural liquidity deficit in the banking sector is expected to persist until the end of 2016.

Having said that, structural liquidity deficit allows for a short-term cash surplus in the banking sector. Thus, early August saw a need for deposit auctions to substitute for one-week Bank of Russia repo operations. The first auction was held on 9 August.

In July, overnight money market rates saw a modest decline on the back of shrinking borrowings by some major banks. In the first half of August, overnight interbank and repo rates held at the July level, while rates on overnight FX swaps went slightly down.

Amid favourable external economic environment, the ruble exchange rate in July was mostly determined by internal factors. As FX export revenues were increasingly sold to pay dividends, the ruble exchange rate became less dependent on oil prices. As the comment says, in this environment the ruble exchange rate was considerably less volatile in July.