Major Trends in Financial Markets
(October 2007)
The situation in the financial markets in October formed under the influence of further growth of inflation rate. In the reporting month, the interest rates throughout market segments kept on increasing.
In order to withdraw the excessive liquidity in the banking system, the National Bank continued increasing the volume of NBKR notes issue. As a result, in the conditions of low demand at the auctions, the yield of notes rose steeply during the first week of the month. Later on, the demand for the notes notably increased, and their yield started decreasing by the end of the month. The overall average monthly yield of NBKR notes increased by 6.3 percentage points in October, totaling 11.5 per cent. In the reporting period, the average weekly amount of filed requests for NBKR notes purchases increased 3.5 times, up to KGS 245.1 Million, and the average weekly note sales volume increased 2.6 times, making KGS 160.7 Million.
The rise of the yield was also registered in all market segments of the primary STB market. As a whole, the overall weighed average yield of STB increased during the month by 1.7 percentage points, up to 9.3 per cent. A weekly average amount of filed requests was down by 46.5 per cent, amounting to KGS 51.7 Million, and their sales volume decreased by 43.5 per cent, having made KGS 25.3 Million on average for the week.
In the inter-bank credit market, the demand for borrowed funds in KGS was down. The volume of inter-bank credits in national currency was down by 11.9 per cent and amounted to KGS 926.5 Million. This includes the volume of REPO-transactions, which increased by 9.3 per cent and made KGS 787.5 Million, and the volume of transactions in the segment of ordinary national currency credits which were down by 58.0 per cent and amounted to KGS 139.0 Million. At the same time, the value of credits in national currency increased under the influence of rates increase at the government securities market: the weighed average rate of REPO-transactions increased by 4.1 percentage points, up to 7.4 per cent, and the average value of ordinary inter-bank credits in national currency increased from 2.9 to 5.6 per cent.
The USD exchange rate in the domestic foreign exchange market swiftly went down in the first week of the month due to the remaining excessive supply of foreign currency, as well as due to the measures for tightening monetary policy. In with the context of increased exchange rate volatility the National Bank performed transactions both on USD purchases and sales, in order to smooth sharp fluctuations of KGS exchange rate. As a result, in the second half of the month, the range of USD exchange rate fluctuations was significantly down. The balance of NBKR transactions in the inter-bank foreign exchange market was negative and amounted to USD 0.2 Million. On the whole, the weighed average USD exchange rate in the inter-bank currency auctions during the month was down by 4.5 per cent and equal to 35.0 KGS/USD as of the end of October. The USD accounting exchange rate was down by 5.2 per cent, making 34.9954 KGS/USD. The USD selling rate in the exchange offices was down by 3.6 per cent, and amounted to 35.0095 KGS/USD.
The national currency exchange rate also increased against other major currencies in the reporting month. For instance, the EUR exchange rate in exchange offices was down against KGS by 3.0 per cent, the RUR rate went down by 3.6 per cent, and KZT rate decreased by 3.7 per cent.
In order to withdraw excess KGS liquidity in the banking system, the National Bank declared auctions on STB(s) REPO sales resulting in reverse REPO-agreements concluded with commercial banks for the amount of KGS 454.2 Million. The yield of these transactions varied in the range from 5.1 to 8.0 per cent, depending on the maturity.
Commercial banks in the reporting period did not allocate funds to the NBKR fixed maturity deposit accounts.
