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Money market: overnight FX swap falls to CBR bid

On Friday, the overnight FX swap closed 3.5pp on the day at 7.08%. Eventually, it touched 7.0%, the level of CBR's bid in FX swap, but so far CBR data have not shown banks engaged in FX swap operations with the regulator. This morning, the volume of banks' deposits with the CBR reached RUB 189bn (up RUB 81bn). At the same time, on Friday, banks borrowed a record high RUB 536bn at the CBR's overnight repo window. Therefore, it is not a surprise that the overnight MICEX repo rate remained sticky at 10.44% so as, perhaps, RUONIA changed little. Therefore, we estimate the spread between the overnight FX swap and RUONIA moved to -70bp on Friday. In addition, we noted the spread between offshore and onshore implied RUB forward rates widened significantly: in particular, the difference between the 1M NDF and 1M MICEX swap rates hit 210bp on Friday, close to recent highs. In that sense, situation is starting to look like August-September: low overnight FX swap (i.e. high USD liquidity cost) and a sharp difference between local and foreign NDF quotes as domestic banks are squeezing out the USD liquidity. The latter could put additional pressure on FX spot market, so it is crucial that the CBR's FX refinancing instruments are efficient. Hence, today, the regulator is offering USD 1.5bn for 27 days at a minimum rate of 1.654%. However, collateral might be a constraining factor again, since the CBR's FX swap offer is still limited. On the other hand, the situation with rouble liquidity might improve temporarily, with the beginning of new month, so banks might spare some bonds to secure FX liquidity from regulator. Overall, the balance looks fragile. That said, Friday's swings in the FX swap market could have been fuelled by the end of the month window-making effect. Therefore, the next couple of sessions are important for understanding what condition the market is in. Meanwhile, we highlight that the MosPrime-Libor basis and NDF rates (offshore) are not trading as if there is some acute squeeze of USD liquidity. However, if the above indicators do not change today, we believe that it might be an opportunity to sell some basis here and/or receive NDF rates. However, high pressure on the FX spot increases the probability of CBR's tightening step.
Maxim Korovin, Tatiana Zueva
VTB Capital analyst

liquidity, MICEX, CBR

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