On Friday, the trimming of receiver positions in NDF/XCCY took a pause and NDF rates dropped 40bp on average. Thus, the 3-month NDF rate declined to 7.07% and the 6-month NDF rate is 7.18%. Nevertheless, the forward rate curve implied by NDFs suggest that the overnight FX swap rate is likely to be 50-60bp above the CBR offer in the course of the next six months. Thus, considering that the CBR is flexible with regards to the exchange rate, the NDF/XCCY curve continues to price in rather serious monetary tightening either in the form of policy rate hikes or by a deterioration in the liquidity environment leading to big premiums in the OTC market for overnight FX swap. In our view, these views are not yet justified as, on the one hand, the CBR will not hike to defend the depreciating currency unless its inflationary impact becomes a threat to the CBR's inflation target and, on the other, the CBR should maintain the same intervention pace for 2-3 months in a row (too distant in the future, in our view) so that banks' indebtedness will at least exceed the top level of the previous year.
Also, banks borrowed RUB 40bn at 6.30% via the overnight auction repo on Friday. This week, the CBR is expected to enter into the new mode without regular overnight repo auctions and this is likely to lead to some liquidity relief, as we expect banks will tend to over-borrow until they get used to the new format of liquidity management.