Central Bank sees no liquidity problems in Russian banking sector, market rates rising due to strategies of individual banks

MOSCOW. Aug 11 (Interfax) - The Central Bank of Russia does not generally see liquidity problems in the banking sector, with money market rates rising due to the strategies of individual major banks, the regulator said in a Monetary Conditions and Monetary Policy Transmission commentary.

On average, the RUONIA rate was close to the key rate in July.

"Competition for funds intensified in the middle of the month, and the cost of overnight loans on the money market rose way above the key rate. This usually happens when there is a liquidity shortage in the banking sector, but this time there was enough liquidity. The growth in rates was linked to the strategy of selected major banks for managing correspondent accounts with the Bank of Russia. Despite attractive market conditions, some potential lenders left excess liquidity in their correspondent accounts with the Bank of Russia instead of placing it on the money market. As a result, bank borrowers offered higher rates to the remaining lenders to attract the necessary funds," the Central Bank said.

The Central Bank held three fine-tuning repo auctions to offset increased demand for liquidity and narrow the spread. Banks completed the June required reserve averaging period with a significant surplus on correspondent accounts, which they had to place in standing deposits, the regulator said.

"The Bank of Russia will continue to make decisions on fine-tuning auctions, given the banking sector's need for liquidity as well as current market rates. The lower the key rate, the more important it is to align market rates with the key rate to keep the policy signal clear. Rate volatility will ease as banks adapt to the new approach," the Central Bank said.

It said banking needs for liquidity on market terms averaged at 5.1 trillion rubles in July, as in June.

The structural liquidity deficit increased by 0.3 trillion rubles in July. Demand for cash increased more than in the same period of previous years: cash in circulation grew 0.7 trillion rubles in July against 0.5 trillion rubles in June.

The Central Bank has not yet changed its structural liquidity deficit forecast for the sector in 2026: it still estimates it at 2.4 trillion-3.6 trillion rubles, with banks needing to raise 6.0 trillion-7.2 trillion rubles of liquidity at auctions. The Bank of Russia plans to update its structural liquidity deficit forecast in its next Monetary Conditions and Monetary Policy Transmission.