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Money market: FX weakening pushes NDF implied rates up


The situation with banking liquidity changed little yesterday, so banks’ debt to the regulator remained unchanged. Meanwhile, the weighted-average overnight FX swap rate picked up to 8.20% (+11bp), yet at the close it traded as low as 7.76% (-78bp). Speaking in London, CBR Deputy Chairman Sergei Shvetsov said that the CBR might increase policy rates, if the «current direction continues." This increases the probability of a rate hike next week, because whatever the «current direction» is, weekly inflation has accelerated from 0.2% to 0.3%, while RUB is making fresh lows. Meanwhile, he also reiterated the regulator’s intention to abandon the operational band for the BASKET, while the medium-term inflation target of 4.0% remains intact. He also mentioned that the CBR might consider a longer term FX repo facility, as per banks’ request for funding. Even though no details or timing were provided, the latter is a positive sign, in our view, as the CBR acknowledges the seriousness of the situation, when the US Dollar interbank lending market is disrupted, while access to international capital markets is rather limited. NDF and XCCY rates widened 10-15bp yesterday with 3M NDF closing at 8.99%, while 12M inched up to 9.15%. Interestingly, the shape of the NDF curve did not change yesterday, as the 1m3m and 3m12m NDF spreads remained unchanged at 23bp and 17bp, respectively. Hence, for now the market has disregarded the increased probability of a near-term rate hike amid Shvetsov’s comments.

Maxim Korovin, Tatyana Zueva
VTB Capital analyst

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