According to CBR statistics, cash in circulation has declined RUB 664bn YTD. This is the usual pattern for January, but the pace exceeds previous years: January 2014 outstanding cash amounts declined RUB 643bn for the entire month. This process has fuelled banking liquidity, as the balance of correspondent accounts almost reached RUB 1.9tn. In addition, the Treasury announced a RUB 300bn deposit auction for today, so the liquidity outlook is positive in the near-term, especially, given that the CBR’s FX interventions are moderate. In light of this, it is no surprise that the overnight FX swap and RUONIA are stuck close to the key rate.
Meanwhile, NDF rates rallied, following the stronger FX spot market. 1M NDF closed 4.0pp down at 21.1%, while the 3M declined 3.00pp to 22.1%. Longer-dated XCCY swap rates have also tightened 40‑60bp. In our view, there is more room for this downward move at the front end, given that O/N is stable at 17.0%, which offers a decent carry. Moreover, MinFin’s plans for the Reserve Fund would provide additional support for banking liquidity in the near-term. Unless FX interventions increase markedly (not our base-case scenario), the liquidity outlook for the whole year is positive. We highlight that onshore 1M NDF closed at 16.8% yesterday. The IRS curve closed barely changed yesterday, so the basis swap spread returned to the -250-300bp range.