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Money market: rates are stable

Yesterday, the overnight FX swap ended at 16.20%, while the weighted-average rate for the whole session was 16.92%, close to the level of the key rate. We think the cost of rouble liquidity was also not that far from 17.0%, so the spread between overnight FX swap and RUONIA was likely around flat. We highlight that the balance of correspondent accounts surged to RUB 1.5tn as of 12 January, up from RUB 1.2tn at the end of last year. Given that the CBR did not provide additional liquidity over that period, we think that the increase in liquidity came from declining cash. Meanwhile, banks parked near RUB 805bn on deposits in the CBR. The banking system is in a situation of overliquidity right now, which is not unusual for the beginning of January. We highlight that the Treasury is to withdraw RUB 280bn this week, while the CBR is likely to cut the limit on one-week repo today. Meanwhile, banks secured RUB 934.5bn at the 3-month 312-P auction yesterday, which for the most part is a rollover of outstanding debt to the CBR. However, we estimate the net liquidity injection could still be around RUB 100bn. Hence, the total debt under the 312-P window might reach RUB 4.53tn. NDF rates tightened on the front end yesterday: in particular, 1M NDF was down 2.0pp to 25.6%, while 3M narrowed 16bp to 24.75%. Meanwhile, 12M NDF moved up 50bp to 18.7%. At the same time, onshore NDF rates remain visibly lower, with 1M trading at 17.3% in the MICEX. Overall, we think that situation with banking liquidity will remain stable in the medium term, as the CBR is likely to refrain from large FX interventions. Meanwhile, banks have plenty of free reserves. Therefore, the spread of front end offshore NDFs to the overnight rates looks excessive here, in our view. At the same time, longer dated XCCY swap rates are trading more reasonably from a historical perspective. Hence, we expect some NDF/XCCY curve flattening, while the 1s2s XCCY spread is currently standing at -300bp.
Maxin Korovin, Tatiana Zueva
VTB Capital analyst

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