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Money market: aggressive bidding for CBR funds

Yesterday, the CBR offered RUB 2.79tn for the one-week repo auction and additionally announced a one-day RUB 200bn auction. The latter saw bids of RUB 500bn, so the total size was allocated at an average rate of 10.10% vs. the 9.50% minimum threshold. Demand for the one-week funds was high as well at RUB 3.35tn. Hence, banks secured RUB 2.79tn at an average rate of 9.94%. Interestingly, one or a few banks bid at 10.50% in the latter auction, i.e. the cost of the overnight standing repo facility. We understand that operationally it is more convenient to take one-week repo than overnight. Therefore, yesterday the CBR injected RUB 200bn to help banks pass the MET, so likely demand for the overnight repo was subdued. Meanwhile, the outstanding volume of one-week repo is to increase RUB 100bn today. Despite the liquidity injection from the CBR, banks also took RUB 90bn in the FX swap window, sending the overnight FX swap rate as high as 10.9%. Meanwhile, the weighted average overnight FX swap rate for the entire session printed at 10.61%, i.e. for the first time in recent history it was above the upper end of the CBR’s interest rate band. This undermines the regulator’s credibility to some extent, in our view, since the predictability and stability of overnight rates should have been the flipside of the free float. Other money market benchmark rates (RUONIA, MICEX repo) also surged, which suggests that there are no grounds to talk of a ‘US Dollar deficit’ issue. Meanwhile, the overnight FX swap scratching the 11% mark spooked the sellers in the NDF market. Yesterday, front-end NDF implied rates widened near 30-50bp with 3M closed at 11.3%, while 12M NDF picked up to 10.58%. Longer-dated XCCY swap rates moved up near 30bp. The IRS curve had also adjusted higher, but relatively to a lesser extent. Hence, the basis swap has actually narrowed a bit.
Maxim Korovin, Tatyana Zueva
VTB Capital analyst

money market

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