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Rates: overnight rates fall as banks held high levels of excess reserves over last month

As the end of the monthly period for required reserves calculation is approaching (on 10 February), the banks significantly reduced their liquidity demand. Thus, correspondent accounts dropped to below RUB 900bn and the overnight swap rate (a marginal liquidity instrument in the absence of the overnight repo auction) fell to 4.0% by the end of the trading session. We consider that the easing money market situation is simply a legacy of the high budget spending at the end of December and that money market rates below 5.5% will not hold in the medium term (or even in the short term after 10 February). Thus, the NDF/XCCY curve normalised and front-end rates dropped 30bp on average, with 1-3-month NDF rates at 6.6 6.7%, offering some premium to the CBR overnight FX swap rate. IRS rates lagged XCCY rates and trade at around 7.5% along the curve. This looks to be excessive, as three-month MosPrime is near 7.15% and any move higher is likely to be capped by frequent 312-P auctions. Thus, receiving IRS positions looks quite attractive to us.
Maxim Korovin, Anton Nikitin
VTB Capital analyst


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