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Separately, MinFin talks about introducing a limit on the Treasury’s account in the CBR


In other news, Moiseev said yesterday that MinFin and the Treasury were discussing a mechanism for imposing a limit on the Treasury’s account in the CBR. This could potentially be done during 1Q14. Consequently, all funds above the limit would be allocated to banks. Effectively, this would limit the budget’s sterilisation during the year, which is again rather positive for banking liquidity and money market rates.

In particular, we highlight that by the end of November last year, the Treasury had near RUB 2.2tn on account with the CBR, while only about RUB 820bn was rolled into 2014. Meanwhile, by the end of January the Treasury had accumulated RUB 1.6-1.7tn thanks to the substantial budget surplus at the beginning of the year and the decline in deposits. Moiseev said that a RUB 0.5tn limit was being discussed, while we highlight that, historically, the Treasury has rolled over near RUB 1.0tn every year. Nevertheless, even if the limit is set at RUB 1.0tn, that would help to contain the budget’s sterilisation (in theory, the budget’s impact on liquidity during the year could be close to neutral). In our view, the main risk here is that MinFin might decide to allocate funds to banks on a collateralised basis (not unsecured, as it does now), and the problem with the lack of collateral is well known. Also, the lion's share of Treasury funds goes to the largest banks, and given the not very effective money market in Russia that would only fuel a further fragmentation of the banking system.

Regarding the market’s price action, IRS and CCS saw upward pressure yesterday with IRS climbing 3-7bp, while CCS moved a little slower, so the basis has widened a bit. Meanwhile, the Treasury allocated RUB 55bn on banks’ deposits on demand of RUB 93bn at an average rate of 6.00%. Also, the State pension fund announced RUB 35bn on deposits this week. The CBR conducted a one-week repo auction yesterday for RUB 2.26tn: the whole size was secured at an average rate of 5.55%. 
Maxim Korovin, Anton Nikitin
VTB Capital analyst

CBR, ruble

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