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Money market: ample free reserves cushion overnight rates

Yesterday, the CBR offered RUB 2.45tn at the one-week repo auction. Total demand was RUB 2.87tn, so banks secured the whole offering size at an average rate of 17.30%. Therefore, the amount of outstanding one-week repo is to decline by RUB 240bn today. In addition, the Treasury withdraws RUB 250bn from deposits, so the combined liquidity outflow would be around RUB 500bn. However, banks have kept near RUB 1.8tn on current accounts with the CBR recently, so the outflow is unlikely to be an issue, since we estimate banks need no more that RUB 1.2tn on current accounts to meet the regulation for the calculation of required reserves. In addition, banks still keep RUB 430bn in CBR deposits. In the light of this, RUONIA remains just above the key rate level, while the weighted average overnight FX swap rate printed at 16.90%. Hence, the spread between the cost of USD and RUB liquidity is still -60-50bp. In the light of this, front-end NDF rates remained largely stable yesterday, with the 1M NDF closing at 25.5%, while the 3M NDF settled at 25.3%. Meanwhile, longer-dated XCCY swap rates widened near 40-60bp on the back of continued volatility in the FX spot market. The IRS curve moved up 20-40bp, so the basis narrowed near 20-30bp.
Maxim Korovin, Tatiana Zueva
VTB Capital analyst

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