OREANDA-NEWS. In 2016 Q2, the banking sector experienced liquidity structural shortage. As budget funds went primarily to large banks, some of them accumulated liquidity surplus which they placed in the money market. At the same time, the greater part of banks and consequently the banking sector in general still experienced dire need of Bank of Russia funds. This is what the second issue of the information analysis called ‘Financial Review: Conditions for Monetary Policy’ says.

The transition of majority of banks and the banking sector in general to liquidity surplus is still expected early 2017. A more even liquidity distribution in the banking sector and its absorption through deposit auctions by the Bank of Russia will stipulate the approach of money market rates to the Bank of Russia key rate.

Operations of the Russian Ministry of Finance to cover the federal budget deficit will substantially affect liquidity of the banking sector. However, the publication states that the inflow of budget funds in the banking sector is built through sovereign fund resources. Budget revenues from federal loan bonds (OFZ) or from privatisation of state companies have no impact on the liquidity in a mid-term perspective.

The confidence of debt market participants in further inflation slowdown gave a fresh impetus to expectations for lower interest rates and OFZ yields in the mid-term and long-term perspective, the Review points out. The document also says OFZ yields might decline following lower inflation and country risk premium.