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Rate markets: view on CBR's monetary decision


On Friday, the CBR was in focus as it held its first monetary policy meeting this year. The regulator left all rates unchanged and revised the wording of the press release. In a later press conference, CBR Governor Elvira Nabiullina said that there was no ground to either hike or cut rates at the moment, since, on the one hand, weak FX poses certain risks for inflation, but, on the other, economy growth is discouraging (the regulator lowered its GDP growth forecast). At the same time, Nabiullina said that the impact of the rouble on inflation is expected to be limited at around 0.5pp. Meanwhile, she said any monetary action would be driven by inflation dynamics, not FX volatility, and that there is no reason to tighten FX swap separately from other instruments. Overall, we view the CBR's decision as positive for rouble rates, even though the widely expected outcome was for the CBR to remain on hold. We highlight that now IRS curve prices see at least 25bp tightening in the near term. We disagree with that view and believe the CBR would not hike the rate in the near term. Also, 3M-9M NDFs are trading at a 7.00-7.20% implied yield rate, which looks elevated given the 6.50% cap on overnight FX swap by the CBR. Thus, we like receiving front NDF and IRS here. The decision is also positive for OFZs and is likely to boost the appetite of domestic banks. In our view, bonds on the belly of the OFZ curve look the most interesting now, in particular, RFLB 19 6.70 and RFLB 20 6.40.

Regarding Friday's price action, we highlight that overnight FX swap closed at 5.85%, while the weighted-average rate for the whole session was barely above 6.0%. Thus, banks refrained from using FX swap with the CBR. NDF and CCS rates moved down, with the 1M NDF rate settling at 6.63% (-21bp) at the end of the day, while 3M NDF was at 6.95% (-20bp). Likely, the downward move in rates was driven by the CBR's decision and the stronger EM FX. CCS rates closed about 5bp down. FRAs have also moved down, with the 3x6 rate down 6bp to 7.39%, which fuelled some downward re-pricing of the IRS curve: in particular, one-year IRS closed at 7.53% (-8bp). 

Maxim Korovin, Anton Nikitin
VTB Capital analyst

CBR, rates

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