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Money market: more flattening underway; modest FX repo demand

The rouble liquidity situation remained stretched yesterday, so some banks had to tap the CBR’s overnight repo window at 9.0% for RUB 10bn. Daily FX interventions are a big channel of liquidity leakage. Meanwhile, the volume of correspondent accounts with the CBR declined to RUB 907bn. Although it is not presently alarming, if the current pace of FX interventions persists, even the usual pick up of budget outlays at the beginning of the month might not provide the needed boost to liquidity. Consequently, we believe that the CBR might announce some fine-tuning ad-hoc repo auctions. Meanwhile, the overnight FX swap traded at the 8.6-8.8% level yesterday, which was in line with Tuesday. Front-end NDF rates widened markedly, with 1M up 40bp to 10.73% and 3M closing at 10.50%. Longer-dated rates moved less: 12M NDF inched up 15bp to 10.00%, while the 2-year XCCY swap also ended up 15bp, at 9.48%. Thus, the NDF curve flattened substantially, pricing in a rate hike of at least 100-150bp, we estimate. The IRS curve moved up only 5 10bp, so the basis swap continued narrowing. Separately, we highlight that at yesterday’s 28-day FX repo auction, banks secured only USD 201mn out of USD 1.5bn offered. In our view, the main reason behind the subdued demand was unattractive pricing (the minimum rate was 2.4%), while overnight the FX swap traded at 8.7-8.8%. In addition, perhaps some banks did not sign on time a new agreement with the CBR needed for participation in the auction.
Maxim Korovin, Tatyana Zueva
VTB Capital analyst

money market

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