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Money market: liquidity restrains re-pricing


Yesterday, the price action on the money market was rather contained, as the 100bp key rate cut came broadly in line with consensus, while the level of free reserves remained close to zero, we estimate. On Monday morning, the volume of banks’ correspondent accounts stood at RUB 944bn. Minutes before the bell, the overnight FX swap spiked to 15.72%, overshooting the CBR’s offer in USDRUB swap. The weighted-average FX swap rate printed 12.72%. Banks borrowed RUB 55bn from the regulator in FX swap facility and RUB 70bn in one-day repo. In our view, that episode highlights how tightly banks are managing the liquidity position right now, struggling to pay back the regulatory funding. However, the overshoot above the upper end of the CBR’s policy band was likely a technical one-off issue. Separately, the Treasury announced two deposit auctions for this week, tendering RUB 180bn in total. If taken in full, they will bring RUB 143bn of fresh liquidity to the system.

The NDF/XCCY curve moved down 5-10bp, though separate tenors nudged down 20bp. Thus, the 1M NDF rate closed at 13.57% and the one-year XCCY rate declined to 12.28%, followed by the two-year rate, which fell to 11.30%. At the same time, 3M MosPrime eased to 13.07% (-18bp), pulling the IRS rates 10-20bp down across the curve. Regarding the monetary policy outlook, we see the key rate at 10.0% by the year-end, though we expect a slower pace of monetary policy easing. Meanwhile, the 1M onshore XCCY swap closed at 11.9% (-54bp).

Speaking after the Board of Directors meeting, CBR Governor Elvira Nabiullina said that there were signs that the pace at which inflation is expected to decline had slowed down, although headline disinflation is gaining faster than the regulator expected at the beginning of the year. In light of this, she said the room for monetary easing had narrowed compared with the situation back in January, so the CBR might proceed through the easing cycle at a slower speed (indeed, she did not rule out pauses).

We also think that the CBR’s policy rate cuts are going to slow down now. In light of this, we think that receiving the front end of the NDF curve does not look that interesting any more. However, longer tenors like 6M at 12.9% and 12M at 12.5% still look attractive. 

Maxim Korovin, Tatiana Zueva
VTB Capital analysts

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