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CBR narrows repo limit alone, but unlikely to tighten the liquidity belt

The CBR set the one-week repo limit at only RUB 2.30tn and the banks utilised it in full at 5.55% (albeit, demand totalled RUB 2.45tn). The outstanding volume of one-week repo was RUB 2.65tn, thus, effectively the CBR will absorb RUB 350bn on Wednesday. In our view, the reason to cut the repo limit has nothing to do with tightening liquidity conditions rather that the CBR expects RUB 200bn to be injected by the budget next week. Also, as the end of the averaging period for required reserves ends on 10 February, the regulator expects that banks already boosted excessive reserves enough to get through the regulation period. Conservatively, we estimate that banks can bring the balance of correspondent accounts down to RUB 900bn by the end of the week against the RUB 1.14tn currently, which would free up c.RUB 250bn. NDF/XCCY and IRS curves dropped by 10-15bp on Tuesday, thus, the curve is inverted with 3-month NDF at 7.3% and 3-year XCCY at 7.18%. We consider that the decline in rates is likely to continue as FX pressure diminishes and as the banking system is still a few months away from the liquidity squeeze seen in December.
Maxim Korovin, Anton Nikitin
VTB Capital analyst

rates, CBR

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