Yesterday, banks secured RUB 80bn at the Treasury’s one-month auction at an average rate of 8.83%. Meanwhile, total demand was RUB 175bn. Overall, the auction allowed banks to roll over the outstanding deposits, but did not bring fresh liquidity into the system. Hence, the amount of Treasury deposits in the banking system has declined RUB 240bn MTD, which has almost entirely offset the positive effect of budget expenditures in October. The total balance of banks’ correspondent accounts was only RUB 647bn yesterday, but RUONIA remained below 8.0% (7.41%) as the September-October averaging period is near the end, so banks are able to use previously accumulated free reserves. However, the situation is set to change next week with the start of the new averaging period, when demand for the CBR’s refinancing is to increase. Subsequently, rouble interest rates are likely to pick up.
Separately, the overnight FX swap continued moving higher as the weighted-average rate for Thursday printed at 6.82% (+33bp). Still, it remains at relatively depressed levels. In response, NDF rates widened 30-40bp yesterday with 3M NDF closing at 7.85%, while 12M NDF moved up to 8.52%. As we have argued before, the higher the amount of CBR FX interventions, the lower the pressure from the US Dollar deficit. Meanwhile, longer dated XCCY swap rates have widened only 10-15bp, with the two-year rate closing at 8.37%. Hence, the NDF/XCCY curve has flattened as we suggested. Globally, RUB NDF implied rates have moved in line with Brazilian rates, while the rest of the EM rates space has tightened or closed flat. However, we still think that RUB’s carry looks low compared with EM peers.