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Money market is under pressure despite CBR’s efforts


Overnight rates remained elevated yesterday, even though there were no tax payments. Hence, overnight the FX swap rate widened 22bp to 6.53%, while the cost of the overnight repo in the market surged 19bp to 6.24%. In response, the regulator increased the limit for overnight repo to RUB 440bn and RUB 2.24tn for the weekly auction. However, banks secured only RUB 278.8bn at the overnight auction at an average rate of 5.55% (a RUB 76bn increase compared to Monday). Also, banks borrowed RUB 1,957.5bn in the weekly auction at an average rate of 5.52%, down RUB 23.7bn from the previous week. 

Why has liquidity suddenly became so tight? Probably, one or more banks miscalculated the amount of MET tax on Monday and had to cover the gap in the market. According to the CBR’s statistics, MET sterilised near RUB 369bn of liquidity, about RUB 144bn more than in July. This was the result of a quite rare combination of factors: RUB remained under pressure in July, while crude oil stood strong. On top of this, the CBR’s FX interventions remain a considerable drag on liquidity: specifically, over the last three months, the CBR has already sterilised RUB 408bn of liquidity. 

Therefore, banks had to turn back to the FX swap facility with the CBR: according to the statistics, on Monday banks borrowed RUB 113.3bn in swaps. And yesterday, the swap volume likely increased. In such an environment, we think the CBR needs to announce a second MTRO (312-P regulation) without any delay and do everything it can (i.e. cooperate with banks to approve as much collateral pool as possible) to inject a sufficient amount of liquidity. Separately, we highlight that the Treasury has allocated RUB 70bn on one-month banks’ deposits against demand of RUB 96.8bn (the average rate printed at 5.73%). However, the banking system would not enjoy any liquidity injection, as this is simply a rollover of outstanding debt.

Maxim Korovin, Anton Nikitin
VTB Capital analyst

CBR, ruble

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