Monetary conditions ease, remain tight in April–May
The Central Bank of Russia reported that monetary conditions eased in April and May but remained tight overall. Key money market rates declined, while government bond yields showed mixed dynamics.
Easing conditions, mixed market signals
Indicators of monetary conditions (MCs) generally shifted towards easing in April–May, though remaining tight.
The RUONIA rate averaged 14.18 percent in May, a 46 basis point decrease from April, with money market rates forming at a negative spread to the key rate.
Nominal yields in money market and corporate bonds decreased in May.
The Central Bank of Russia's Board of Directors did not hold a key rate meeting in May, with the rate remaining at 14.50 percent, following a 50 basis point cut on April 24. Analysts anticipate further rate reductions in 2026, contingent on sustained disinflation and stable inflation expectations.
The CBR forecasts annual inflation to decline to 4.5–5.5 percent in 2026.
Liquidity needs and bond market shifts
The OFZ market showed mixed dynamics in May; short-end yields decreased following the April key rate cut, while long-end yields rose.
This widened the 10Y-2Y spread to +156 basis points by end-May, reflecting a re-evaluation of term premium amid budget deficit risks.
Banks' liquidity needs slightly increased to RUB 4.1 trillion in May, influenced by a RUB 0.4 trillion rise in cash in circulation.
The Central Bank of Russia refined its fine-tuning auction approaches from May 13 to enhance operational efficiency, though no fine-tuning auctions were required.
Credit to the economy and money supply growth accelerated in April, primarily driven by corporate loans.
Gradual adjustment, persistent tightness
This commentary highlights the CBR's cautious approach to easing, balancing disinflation with underlying tightness.
The mixed bond market signals and persistent liquidity needs underscore the complexity of the current environment.
While some indicators point to softening, the overall picture suggests the CBR retains a restrictive stance to manage inflation.