As mentioned above, the NDF market priced in monetary policy tightening of at least about 200bp prior to the CBR’s decision. Thus, the rate hike of ‘just’ 150bp fuelled a rally in the front-end rates. In particular, 1M NDF tightened near 80bp to 11.01%, while 3M NDF closed at 10.9% (-30bp). Longer-dated rates closed flat or only 3-7bp lower. Meanwhile, we highlight that the curve has become flatter with the 1s2s NDF/XCCY spread moving to -70bp from -50bp the week before. In addition, the curve became inverted at a record level for the last 52 weeks, as the 3m12m NDF spread closed at -100bp, while it had been trading in positive numbers before Friday’s CBR meeting. It is clear that NDFs are not pricing in a rate hike in the near-term, which we are in agreement with. At the same time, we highlight that the CBR’s overnight liquidity window now costs 10.50%, and we believe that due to the substantial amount of FX interventions, the market is set to trade near this benchmark in the near term. Therefore, at current levels, the NDF market is pricing either monetary easing fairly soon (rather unlikely) or some changes to the CBR’s FX policy aimed at stopping international reserves being drained and limiting FX volatility.
Meanwhile, liquidity wise, the situation should improve with the beginning of the new month, but not substantially since the volume of October’s FX interventions in rouble terms was even higher than in March, constituting substantial liquidity sterilisation. Overall, the CBR provided RUB 2.85tn on Friday at the repo auction, while demand was RUB 3.1tn. Hence, banks borrowed RUB 57bn in the overnight repo window and RUB 210bn in FX swaps. However, we expect the demand for FX swap refinancing was driven by technical considerations also, because the CBR’s FX swap offer on Friday was calculated on the basis of an 8.00% key rate level. The Treasury is set to provide RUB 200bn at the one-month deposit auction at a minimum rate of 9.50%. Previously, the minimum threshold was 8.50%, so the adjustment was smaller than the CBR’s move.