Russian Central Bank raises forecast for liquidity surplus to 0.5-1.2 trln rubles for 2023 on lower expectations of demand for cash

MOSCOW. Dec 8 (Interfax) - The Central Bank of Russia (CBR) has raised its forecast for the structural liquidity surplus of the banking sector to 0.5-1.2 trillion rubles for 2023, the regulator said in a commentary.

The main change is associated with a decline in the forecast for the demand for cash, taking into account actual data for October-November 2023, and the CBR has narrowed the forecast interval for the indicator.

The CBR projects growth of 1.9-2.3 trillion rubles in cash in circulation in 2023.

Demand for cash in November was below seasonal levels, the CBR notes, with the volume of cash in circulation declining by 300 billion rubles. "This is owing to the continued return of cash to banks amid rising deposit rates, and possibly to an increase in the volume of revenue collection from retail trade enterprises amid rising consumer activity," according to the commentary.

The CBR in September substantially updated the forecast for the structural liquidity balance for 2023, when the regulator expected it to range from a surplus of 700 billion rubles to a deficit of 200 billion rubles.

The CBR notes the rise in the rates of the lending and deposit market and the short rates of the money market in October-November, which indicates tightening monetary conditions in the Russian economy. "The slowdown in lending activity in the corporate and retail segments is occurring gradually, indicating lags in the transmission of Bank of Russia decisions into monetary conditions," the regulator emphasizes. Retail lending activity continued to decelerate in November according to operational data, though it remained high overall.

The growth rate in monetary aggregates remained near the local high in November.

The dynamics of the rates on the money and debt markets suggest that players view the current level of the key rate as being close to the peak of the monetary tightening cycle, and assume a faster pace in its reduction starting in the second quarter of 2024.