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Money market: overnight FX rates overshoot

CBR funding was in demand yesterday ahead of today’s tax payments. Hence, banks increased the debt under the 312-P facility to RUB 3.0tn (+RUB 44bn). In addition, the CBR’s limit on the FX swap rouble liquidity provision limit of USD 2.0bn equivalent was used in full (banks borrowed RUB 91bn). On top of that, the volume of overnight repo increased RUB 36bn to RUB 233bn. Hence, overall yesterday the CBR injected RUB 171bn into the banking system. Meanwhile, high demand for the overnight rouble repo could well explain why demand at the 12-month FX repo auction was low. As we have argued, banks might have been expecting some constraints with rouble liquidity going into the November tax period, since the FX swap tool was limited. Thus, given that collateral is still relatively scarce in the system, banks preferred to keep it for rouble refinancing operations. Today, we expect more pressure on the money market amid taxes. However, yesterday the overnight FX swap traded as high as 11.0%, which is relatively encouraging, in our view, since it is not that great a deviation from the top end of the CBR’s interest rate band (currently at 10.50%). Overall, the weighted average overnight FX swap rate for the whole session printed at 10.39%, and at the end of the day it traded down to 9.67%. Meanwhile, during the day NDF rates plunged visibly (20-30bp compared with Friday), but in the curve recovered back to Friday’s closing levels. Thus, 3M NDF closed at 10.77%, while 12M NDF ended at 10.26%. Longer dated XCCY swap rates closed flat as well. However, the IRS curve widened 7-8bp, with 3M MosPrime trading up to 12.31% (+8bp). Hence, the basis continued widening gradually.
Maxim Korovin, Tatyana Zueva
VTB Capital analyst

money market, CBR

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