The Central Bank will offer banks to lose money

“This tool for a long time we were not issued, so in the next two to three months, the Central Bank can carry out a test placement of several tens of billions of rubles, to see how the tool will be in demand, to prepare, to understand the needs of the market”, said the Chairman of the Central Bank Elvira Nabiullina on Friday, June 10, at a press conference following the meeting of the Board of Directors. With the help of this tool, the Central Bank can sterilize the excess liquidity in the banking system.

The controller is ready to issue the first bonds in the face of persistent liquidity deficit, Nabiullina said.

Now the Russian banking system is moving from the structural deficit to surplus liquidity. During the structural deficit of liquidity, banks feel a need to obtain refinancing from the regulator. In this case, the Central Bank can act as a donor for the banking system, by providing resources, in particular, for lending to the economy or, conversely, reducing the volume of refinancing, for example, to limit the influx of rubles on the currency market. But a structural surplus of liquidity means that the money from the banks increases so much that they are no longer interested in attracting funds of the Central Bank, but on the contrary, are themselves its creditors, placing excess liquidity on Deposit and correspondent accounts.

The danger of the structural surpluses that partly of the Central Bank loses control over the process of liquidity management, so as to not affect the banking sector through the interest rate. Practically, this means that the regulator loses control over monetary policy and the initiative goes to the side of the banks. “There are very bold conclusions some bankers and experts that in surplus liquidity, it is possible not to pay attention to the key rate of the Central Bank and that finally they alone will determine interest rate policy. Of course on their own, but the key rate will still continue to determine the structure of interest rates in the economy,” said Nabiullina.

The Russian banking sector was already living in the conditions of surplus of liquidity, the situation for us is not new, said the head of the Central Bank. “With the help of their instruments, the Bank of Russia can limit the amount of surplus, now we sell government securities from our portfolio, we are also considering the possibility of raising the standards of required reserves on ruble deposits and options cancellation of privileges for reserving certain types of obligations,” she said.

However, this does not mean that the Central Bank against the recovery in the consumer market, said Nabiullina. But it should not grow at a faster rate, so as not to contribute to the acceleration of inflation, she added. “There is a risk that a quick recovery of unsecured consumer lending. Small signals we see the dynamics of recent months, but it’s not even a trend, namely small signals. It might make sense to go back to high coefficents risk for unsecured consumer loans”, said Nabiullina, adding that the increased rate will be introduced from 1 August.