CBR launches regular LT REPO facility

RUSSIA ECONOMICS - In Brief 08 May 2020 by Alexander Kudrin

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Today CBR chairperson, Ms. Nabiullina, announced that the regulator will start providing funding for 1 month and 1 year to local commercial banks via regular REPO facility. Auctions will take place once a month. First auction providing one-month facility is due to be launched at the end of May, and one-year funding is due to be launched in June. The rate for longer-term REPO will be floating and linked to the key rate, OFZs and municipal bonds with the highest credit rating will be accepted as collateral.Since 2017 the Russian banking sector has operated in the environment of “structural surplus of liquidity” (as was defined by the CBR). The highest level of this surplus was recorded on February 12, 2020 when it exceeded R5 trln. In the past 12 weeks this surplus contracted by a factor of four (even a bit more) and dropped to R1.2 trln. Last time such a relatively low level was seen at the end of 2017. In this situation money market rates started to climb up, which was well anticipated by GKEM Analytica in the previous notes. As a result, RUONIA surpassed the key rate at the end of April. Partially it could be also associated with traditionally rising demand for cash to sort out usual monthly payments, such as wages, taxes, etc., as in May 6 and 7 it came back slightly to below the key rate. However, the fact that the banks’ aggregate liquidity surplus shrank, it may be interpreted as a clear signal that cash is gradually becoming scarcer – at least for some Russian banks, which means that liquidity is distributed rather unevenly across the system.This contraction of surplus liquidity is caused by the activity of the CBR and Minfin. The former sells FX in line with the...