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Rates remain elevated as the CBR set tight weekly repo limits, the situation is set to improve with the VEB deposit auction

As such, the overnight FX swap and fixed-term repo remain well bid: the overnight FX swap rate is floating around 6.5%. However, the overnight swap rate dropped to 5.5% by the end of the trading session. Indeed, the banking system is functioning in conditions of narrow liquidity as the CBR set tight weekly repo limits on Tuesday. In our view, the rather tight repo limits were not justified by the CBR’s willingness to respond to attacks on RUB rather than by rather optimistic liquidity projections for the consolidated budget. Indeed, tax payments are light this week (only a small payment of corporate income tax is due) but VEB will provide RUB 100bn via its 12-month deposit. Thus, the impact of the consolidated budget on liquidity will be limited this week, so, the volume of FX swap and fixed-term repo is likely to decline until the next auction in our view. To recap, auction repo indebtedness is around RUB 2.3tn, fixed-term repo is RUB 31bn and FX swap indebtedness was RUB 108bn as of 26 February 2014. IRS and XCCY rates were moving up by 10-15bp as RUB almost touched the CBR offer on the upper bound of the dual-currency basket band and CPI did not show signs of deceleration in February (and rate hikes risks in the coming months have heightened slightly, according to the implied NDF rates). However, the IRS/XCCY basis is narrowing to negative 50-55bp as XCCY is more sensitive to RUB’s moves, while 3-month MosPrime is contained on the upside (to recap, 3-month MosPrime is at 7.12% at the moment).
Maxim Korovin, Anton Nikitin
VTB Capital analyst


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