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Money market: overnight FX swap rate remains above 8.0%

The situation in the rouble interbank market changed little yesterday. The Treasury conducted a one-week deposit auction for RUB 100bn, which was taken in full amid RUB 186.5bn of demand at an average rate of 8.16%. Hence, the net liquidity injection from the budget would equal to RUB 85bn. Meanwhile, the CBR offered RUB 2.77tn at the one-week repo auction, which was basically a roll-over of the existing liability. Thus, banks secured RUB 2,769bn at an average rate of 8.13%, i.e. only RUB 69bn higher than outstanding debt. In addition, banks continued to refinance RUB 36bn on the overnight repo basis. Today, the State Pension Fund is to carry out a RUB 49bn deposit auction with maturity on 10 November. The overnight FX swap rate closed at 8.54% (+18bp), while the weighted-average printed at 8.09%. In light of this, front-end NDF rates inched up with 1M NDF closing at 8.67% (+9bp), while 3M widened 12bp to 8.92%. Longer dated XCCY swap rates moved 4-6bp higher, with the two-year rate closing at 8.76%. Hence, the 1s2s XCCY swap spread remained unchanged at -30bp. We still think that it makes sense to hold flatteners on the NDF/XCCY at least until the CBR’s monetary policy meeting in October as there is a clear probability of seeing some response from the regulator to FX market volatility. In addition, the launch of FX repo operations next week could potentially limit the downside in overnight FX swap rates, i.e. moderately push down the cost of US dollars in the interbank market.
Maxim Korovin, Tatyana Zueva
VTB Capital analyst

money market

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