Yesterday, banks borrowed RUB 3.0tn from the regulator: RUB 115.4bn was secured at the overnight repo auction while RUB 2.9tn with today’s settlement was provided at the one-week auction. In both cases, the average rate printed at 7.57%. Separately, banks got RUB 50bn from the Treasury on one-month deposits at an average rate of 8.10% amid RUB 80bn of demand. Separately, banks secured RUB 133bn in the CBR’s FX swap window. Thus, banks are preparing for the heavy taxes ahead, while also boosting the average balance of correspondent accounts in order to comply with the averaging regulation. Thanks to the liquidity injection at the one-day auction, the overnight FX swap rate declined to 7.35% (-106bp) by the end of yesterday’s session. At the same time, the weighted-average FX swap rate for the whole day printed at 8.49% (+8bp). Meanwhile, NDF rates narrowed amid stronger FX. In particular, 1M NDF closed at 9.11% (-27bp), while 6M NDF slipped to 9.20% (-18bp). Longer dated XCCY swap rates moved down near 10bp, with the 5-year closing at 8.24%. The IRS curve performed accordingly, with the 5-year rate down 11bp to 9.28%. At the same time, 3M MosPrime closed at 9.57% (+8bp), while 3x6 FRA inched down 12bp to 9.77%. At the same time, 6x9 FRA decreased 50bp to 9.10%.
Overall, we think receiving front-end rates now looks appropriate, as there has been unexpected RUB weakening spurred NDF buyers (which have brought rates too high, in our view) on the back of monetary tightening concerns. In our view, the pressure on RUB we have seen lately does not look alarming. Thus, the probability of the CBR stepping up and hiking rates to stem the pressure on the FX market in order to address inflation risks is rather low. Separately, inflation has shown some signs of moderation in July thanks to the freeze on regulated tariffs. At the end of the day, our base case for Friday’s CBR meeting is that the regulator keeps rates unchanged. Hence, we think tactically selling NDFs is justified now.