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. Last Updated: 07/27/2016

Currency Swap Rates Cut to 8%

The Central Bank has lowered interest rates on currency swap operations to 8 percent from 10 percent, the bank said Thursday, taking another step to help banks pass smoothly through a difficult liquidity period.

The Central Bank has been working hard to boost liquidity in the banking sector, which has suffered from large capital outflows in recent months.

On Wednesday, the bank cut minimum reserve requirements for banks for three months from Thursday in a move that experts said would free up 60 billion rubles ($2.4 billion) to 100 billion rubles in new liquidity.

"The interest rate cut on currency swap operations by the Bank of Russia will increase the attractiveness of this instrument for credit organizations and will help improve the stability of short-term interest rates on the money market," the bank said in a statement.

Currency swaps are one of many instruments banks have to raise short-term liquidity by borrowing rubles from the Central Bank in exchange for dollars or euros and under an obligation of a reversal operation on the next day at a fixed rate. The banks typically use currency swap operations during periods of liquidity shortage.

"Russia's strong fundamentals suggest that it is well protected over the medium to long term from global liquidity constraints. But in the short term, however, liquidity constraints are an issue," Tom Mundy from Renaissance Capital said in a note.

According to Central Bank data, the volume of operations rarely exceeds $500 million per month during relatively quiet periods, compared with a total of $5 billion in two months during the mini-banking crisis in April and May 2004.