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Money market: liquidity drained on taxes and FX interventions

The banking liquidity situation yesterday was, as we expected, tense, amid MET payments and continuing large CBR FX interventions. Subsequently, money market rates surged closer to 9.0% in the evening, pushing even some banks to tap the regulator’s FX swap window for RUB 46.0bn. Thus, the overnight FX swap closed at 9.0% yesterday, narrowing its spread to RUONIA to zero. Meanwhile, one of the main reasons behind the money market rate spike at the end of the day was apparently that some banks miscalculated their liquidity needs: only RUB 120.3bn of the CBR’s RUB 330bn two-day repo auction offering was used (at an average rate of 8.07%). We expect the situation to calm in coming days, especially as the Treasury today conducts a RUB 200bn two-week deposit auction, which might inject RUB 100bn of liquidity on net basis. Meanwhile, NDF rates have reacted little to the swings in the overnight FX swap. Just like the last week, NDF rates yesterday corrected after the surge on Friday. Thus, market participants seem to be actively hedging positions just for the weekend. Nevertheless, on Monday, front-end NDFs implied that rates tightened 15-20bp, while the longer-dated XCCY swap rate closed almost unchanged. Thus, the curve steepened back, with the 1s2s spread at -40bp, up from -55bp at the end of Friday. Meanwhile, the IRS curve continued moving lower (5-7bp yesterday), which fuels further basis swap narrowing.
Maxim Korovin, Tatyana Zueva
VTB Capital analyst

money market, CBR

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