Bank of Russia speaks against euro deposits
More and more Russian households tend to save in foreign currencies: growth in such deposits has increased by more than twice compared to ruble savings this year. However, the Central Bank of Russia is urging local financial institutions to avoid keeping “excessive” amounts of euros, as these operations may bring banks losses.
Russia’s Central Bank is warning Russian lenders against conducting operations in euros, says The Moscow Times citing head of the bank Elvira Nabiullina. The regulator warned the country’s financial institutions that they must not keep “excessive” amounts of foreign currency on their balance sheets, as doing business in euros brings no profits to Russian banks because of the negative interest rate environment in the eurozone.
“As a central bank, we make sure that Russian banks do not have excessive currency risk on their books, whether in euros or dollars,” said Nabiullina in an interview. “If savers make deposits in euros, this money must be put somewhere by the bank. And there are almost only instruments with negative interest rates. That brings banks losses,” the governor explained, adding that negative interest rates on deposits were prohibited in Russia, so banks had increased the fees for euro accounts.
Meanwhile, growth in deposits denominated in foreign currencies has increased by more than twice compared to the rate of ruble savings this year. Russians currently keep $96 billion in foreign currencies in local banks.
Nabiullina also spoke about the “structural problems” of the Russian economy, such as overdependence on commodities, low productivity and weak incentives for private investment. Although the Central Bank keeps realising loose monetary policy with flexible interest rates, it cannot carry the weight of kick-starting growth in Russia’s sluggish economy, warned the governor. “Growth must come from private investment from healthy, successful companies reinvesting their profits,” she said.
This year, the bank has already cut interest rates from 7,75% to 6,5% due to the inflation slowdown that was “overshooting the forecast” and decreasing inflation expectations. The regulator is expected to revise the rate again before the end of the year. “If the situation develops in line with the baseline forecast, the Bank of Russia will consider the necessity of further key rate reduction at one of the upcoming Board of Directors’ meetings,” said the bank in a statement.