01.09.2008 - MDM Comment: CBR slightly increases cost of liquidity

NEWS

The Russian Central Bank (CBR) will from today limit the ruble liquidity it provides to banks through overnight repo operations at morning auctions. Previously, all applications from the banks were satisfied, i.e. no volume cap existed. 

BACKGROUND

The CBR's overnight repo is the regulator's key channel of providing short-term financing to banks in Russia. The repo rate, currently "at least 7.00%", is Russia's de facto key interest rate. Financing is provided against bonds from the so-called "repo list", containing most RUB bonds rated B1/B+ and above. Two repo auctions take place each day, one in the morning and one in the afternoon; the weighted-average interest rate at the second auction is at least 25bp higher than at the first. Until today the banks had to go to the second auction only if they had miscalculated their liquidity needs in the morning. There are no limits set on the volumes available at the second auction.

OPINION

It is our view that the new measure will result in an insignificant rise in the cost of money for Russian banks, because there will now be competition for money offered at the morning auction. However, we do not believe that the regulator directly pursued the goal of further tightening monetary policy, but rather did so in the interests of ‘housekeeping’, i.e. adding more transparency and logic into the workings  of refinancing instruments.

Today the limit was set at RUB150 bn (just over USD6bn). Banks took RUB149 bn at the morning auction at 7.12% (weighted average). This compares to 7.02-7.03% in the previous days. At the second auction only RUB 8bn was taken at 7.45% compared to the previous rates of 7.37-7.38%.

01.09.2008 16:44