Yesterday, the overnight FX swap continued narrowing, with the weighted-average rate for the session printing at 14.22% (-36bp), although it closed at 15.14%. Meanwhile, RUONIA has likely stayed near 15.3-15.4%, so the negative basis widened beyond -100bp, potentially signalling the mounting deficit of US dollar liquidity in the interbank market. As we saw last year, this situation could be detrimental for the FX spot market. On the other hand, this week banks stepped up the volume of FX repo to USD 21.8bn, from USD 20.25bn the week before, so we suppose that next week, if the marginal bid for US dollar liquidity continues rising, the CBR’s FX repo auction would prevent excessive pressure on the FX swap market. Meanwhile, banks secured USD 404mn from the CBR yesterday in the overnight FX swap window.
Separately, we highlight that banks borrowed RUB 236bn from the State Pension Fund for one month at an average rate of 15.5% amid RUB 449bn of demand. In addition, the Treasury allocated RUB 50bn at deposit in one bank at 15.3%. Hence, the combined fiscal liquidity injection would be RUB 171bn today. Additionally, the volume of outstanding 312-P debt increased RUB 287bn to RUB 3.9tn after the settlement of Monday’s auction. Therefore, we think that RUONIA might decline in the coming days, as well as helping to narrow the negative spread with the overnight FX swap. Front end NDF rates tightened 10bp yesterday, with 1M NDF closing at 17.3%: FX spot volatility countered the low overnight FX swap rates. Longer dated XCCY swap rates also moved down 10-15bp; the IRS curve declined near 20bp.