VTB Capital: Money market - ample liquidity anchors rates
February 5, 2016
Yesterday, the balance in the interbank market remained unchanged. The budget continues pumping liquidity into the banking system, while the seasonal decline in the demand for cash has added near RUB 0.6bn YTD. In light of this, banks' debt under the 312-P facility (i.e. refinancing provided by the CBR against loans pools) decreased RUB 125bn yesterday to RUB 1.5tn. Thus, total indebtedness to the CBR slipped below RUB 1.9tn. As we have argued before, that proccess is to continue further unless there are changes to the way the budget deficit is funded. Therefore, money market rates are to continue migrating from the upper end of the policy band (11-12%) to the lower one (10-11%). Hence, it comes as no surprise that RUONIA has stayed the whole week below 11% so far. The overnight FX swap closed at 10.90% (+60bp), while the weighted-average rate was unchanged at 10.39%.
Meanwhile, banks also borrowed RUB 333bn from the standing overnight repo window, i.e. nearly flat to Wednesday. We think that the amount of repo operations with the CBR is unlikely to be zero any time soon (unless the regulator deliberately cuts the limits), because it became an essential part of the OFZ market infrastructure, while the structural fragmentation of the interbank market does not allow for an even distribution of liquidity.
The NDF curve tightened 10bp on the front end with the 6M NDF down to 10.48%. Longer dated XCCY swaps declined 20bp with the 2-year rate closing at 10.1%. The IRS curve moved the same way, so the basis ended nearly unchanged.
Company — VTB Capital
Full nameCJSC "VTB Capital"