RUB Liquidity Surplus: The Next Big Thing for Russian Banks - SocGen
Research Team at Societe Generale, suggests that the Russian banking
sector liquidity is gaining in significance as the system approaches a
RUB liquidity surplus.
“Largely a consequence of substantial reserve spending by the MinFin to cover the budgetary deficit, the development could have far-reaching implications, not only for ruble rates but also for government borrowing plans and the CBR key rate trajectory.
For local ruble rates, abundant ruble liquidity clearly indicates the potential to move lower, with 10%, the CBR’s stand-by deposit facility rate, as the ultimate target. However, we would not suggest that all rates will go as low as 10%, as liquidity distribution within the system is and will likely remain far from ideal.
For off-shore ruble rates, already at a hefty discount to local rates, the implications are not as clear. It appears that RUB XCCY valuations are now largely driven by stronger demand for USD liquidity rather than improved local funding.
For the central bank key rate, it seems likely that there will be less incentive for the CBR to rush monetary easing. As long as effective interest rates are moving lower on ample ruble liquidity and without monetary easing itself, the CBR is likely to focus on anchoring inflation expectations, which remain high.
The case for the CBR re-launching monetary easing later this year, with the key rate seen as low as 8.5% at end-2016, remains on the table as the disinflation trend becomes sticky and the external environment normalizes. However, it’s important to stress that the CBR is in no rush to cut the key rate.
We do not see any pronounced impact from this trend on RUB FX and keep our Q2/Q3/Q4 forecasts for USD/RUB in 2016 at 72/68/65. However, we see downside risks to the forecast from the benign external environment and softer-than-expected Fed monetary stance.”