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Macro week ahead – RUB and banking system liquidity in the spotlight

 
22.12.2014

This week is fairly light on the data front. Markets will likely focus on RUB's performance and watch for signs of easing/rising stress in the local financial system.

RUB stabilised somewhat in the latter part of last week amid a rising supply of hard currency from exporters. Export sales might continue to prop up RUB during the tax period, but the persistent dollarisation of household savings after the recent bout of FX volatility still presents a major risk. The fact that households prefer to buy cash FX, as opposed to beefing up their FX deposits, presents additional challenges, sucking away USD liquidity from the banking system. It is important in this regard that the CBR provided USD 2.8bn at the 1m USD REPO auction on Friday, as that is likely to help replenish the system with USD liquidity for the time being.

In the meantime, the stress in the banking system has increased significantly following the recent turbulence on the local financial markets. The CBR and the government presented a policy package last week aiming to i) mitigate to some extent the impact of the recent volatility in asset prices on banks' capital base and ii) provide a recapitalisation stopgap for those banks that might need it. This could ultimately help to restore local savers’ confidence in the banking system and stem the outflow of deposits in the weeks/months to come.

In the short term, however, the shortage of RUB liquidity amid still elevated deposit outflows, unfavourable seasonal factors and the lack (uneven distribution) of collateral might present a more pressing issue. Thus, interbank money market rates spiked north of 40%, while the cut-off rate at the latest MinFin's 10-day deposit auction (no collateral required) was as high as 38.3%. In an effort to release additional RUB liquidity into the system, the CBR cut haircuts on most of the eligible collateral base and raised the cap on the FX-swap window to USD 10bn (from USD 2bn, previously). The situation, however, is rather fluid and were the stress to remain elevated, additional policy actions from the CBR might be required.
Vladimir Kolychev
VTB Capital analyst

Tags:
ruble, oil

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