The Russian government’s use of its oil funds to finance the budget deficit will cause the monetary base to expand and is likely to push the banking sector from having a deficit of liquidity to a surplus in the near future. This has raised concerns about an unintended loosening of monetary conditions. However, while the monetary policy tools used by the CBR will need to change with a liquidity surplus, the big picture is that it can sterilise this excess liquidity and should continue to be able to control monetary conditions.
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