“Fine tuning” to help banks increase efficiency in managing liquid assets

On February 17, 2014 the Bank of Russia complimented its monetary policy toolkit with “fine tuning” operations designed to absorb liquidity. 


The operations will be conducted as 1-6 day deposit auctions at the maximum interest rate equaling to the key rate (5.5%). The Central Bank of Russia will to notify before 10 a.m. on the date of auction of its decision to hold a “fine tuning” deposit auction, including the date and the maximum amount. 


The Bank of Russia reports that “fine tuning” deposit transactions are intended to absorb surplus liquidity in the banking sector at the time when the liquidity supply is much higher than the demand because of autonomous factors. This instrument is designed to prevent hyper volatility of interbank lending interest rates resulted from substantial volatility of liquidity in the banking sector. 


As a reminder, on February 3, 2014 the regulator introduced “fine tuning” operations on providing liquidity in response to the cancellation of overnight repo auctions. The Bank of Russia plans to reduce 2-3 times monthly the intensity of using the “fine tuning” operations as the banking system adapts to the use of the principal tools designed to provide and absorb Central Bank’s liquidity for longer periods (one week to one year). 


It should be noted that the introduction of the “fine tuning” toolkit will allow banks to be more efficient in managing liquid assets and eventually create preconditions for flattening volatility of interest rates in the interbank lending market. 


Bozhechkova A. V., a researcher