Russia’s central bank loaned a record 2 trillion rubles ($62 billion) through one-week repurchase agreements as it seeks to wean lenders off dependence on overnight funding.
The regulator offered a record 2.32 trillion rubles at today’s seven-day auction, according to data compiled by Bloomberg. The funds were borrowed at an average weighted rate of 5.52 percent, versus the 5.56 percent at today’s overnight offering. Both auctions had a minimum rate of 5.5 percent.
Elvira Nabiullina, who took over as central bank chairman a month ago, is looking for new ways to provide lenders with cash after economic growth slowed below 2 percent. While policy makers left their main lending rates unchanged in June for a 10th month, borrowing costs have tumbled since the meeting as the central bank said it would offer 500 billion rubles backed by non-marketable assets in an auction on July 29.
“As Bank Rossii has been offering more and more liquidity with seven-day repos, banks have been flowing there,” Vladimir Miklashevsky, a trading desk strategist at Danske Bank A/S in Helsinki, said by e-mail. “It’s like in a restaurant: it’s better to know how many customers will come in the next seven days than guessing from day to day how many meals you’ll have to serve.”
The cost to fix floating payments in rubles for a year using interest-rate swaps has fallen 28 basis points, or 0.28 percentage point to 6.6 percent since July 11, the day before the rates meeting. The three-month MosPrime rate, which large Moscow-based banks say they charge one another, may drop 56 basis points during the next three months from 7 percent now, according to forward-rate agreements tracked by Bloomberg. That’s the most since October 2009.
The new facility backed by non-marketable assets will have a floating rate tied to the one-week repo operations, with the current minimum set at 5.75 percent. Bank Rossii hasn’t yet determined how often it will hold the auctions, Nabiullina told reporters in Moscow July 12.
The funding will displace cash offered by one-week repurchase agreements and seeks to reduce the amount borrowed via ruble swaps, Sergey Shvetsov, a deputy Bank Rossii chairman, said at the same news conference. Policy makers don’t plan to end overnight auctions this year, he said.
The central bank has been trying to “squeeze” lenders out of reliance on the overnight facility since last year by reducing the amounts offered, according to Yury Tulinov, an analyst at OAO Gazprombank in Moscow. Banks may have borrowed the record amount today ahead of next week’s first auction of one-year funds, he said.
“The central bank made it fairly clear that the amount offered through the new instrument would come at the expense of one-week repo volumes,” Tulinov said. “Because of that, banks were probably spooked that next week the one-week limit would be reduced, and so they tried to take the whole amount offered.”