A decrease in Banking Liquidity is a Consequence of Low Dynamics of the Money Supply

From the beginning of 2013, the monetary base in broad terms decreased by Rb 901bn, including Rb 165bn in October.


Negative dynamics of the monetary supply is the specifics of the past few years. After a seasonally justified shrinkage in January, till the end of the year the value of the monetary base has remained virtually below the level of the beginning of the year. The main factors behind the dynamics and volumes of the monetary emission are currency interventions by the Central bank of Russia, changes in account balances of the expanded government with the Central Bank of Russia and operations related to provision of liquidity to banks.

In 2013, interventions by the Central Bank of Russia on the foreign exchange market were mostly in the form of sale of foreign currency which situation resulted in a decrease in the monetary supply. The Central Bank of Russia sold foreign currency for seven months out of ten (from April till October). The aggregate result of operations on the foreign exchange market is a sale of $19bn which situation resulted in a decrease in the monetary base by Rb 630bn, including $2bn and Rb 64bn in October. From the beginning of the year, account balances of the expanded government with the Central Bank of Russia rose by 1.1 trillion, including Rb 260bn in October.

 

In 2013, the only positive factor behind the dynamics of the monetary base is growth in banks' debts to the Central Bank of Russia. From the beginning of the year, banks' liabilities to the regulator rose by over Rb 700bn. The total volume of banks' debt on refinancing operations amounted to Rb 3.8 trillion. 

 

The consequence of low dynamics of the monetary supply is growth in the money multiplier and reduction of banking liquidity. So, in 2013 the ratio of the money supply (М2 aggregate) to a broad monetary base reached the maximum historic level of 3.2 times, while banks' most liquid assets (cash, and correspondent account balances and deposits with the Central Bank of Russia) fell, on the contrary, to the level of 3.5% of the total value of banks' assets.

 

М.Yu. Khromov, Leading Expert of the Structural Research Center