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CBR: new rescue package and money market overview

07 April 2020
CBR: new rescue package and money market overview

On April 3, Russia’s Central Bank Governor Elvira Nabiullina held an important news briefings. The regulator will start holding them every Friday at 14:00 Moscow time with a focus on money market performance, macroeconomics and effects from implementation of stimulus measures

On April 3, Russia’s Central Bank Governor Elvira Nabiullina held an important news briefings. The regulator will start holding them every Friday at 14:00 Moscow time with a focus on money market performance, macroeconomics and effects from implementation of stimulus measures.

Announced measures

On providing liquidity

  • On April 6, the Bank of Russia will hold a "fine-tuning" repo auction in the amount of 500 bln roubles, with the first part of transactions to be conducted on the day of the auction, the second part on April 8, 2020, the Central Bank informed.

Retail and SME

  • Support for SME via easing in lending conditions and one-time deferrals in retail loan payments for six months if income drops 30% y-o-y

Financial institutions

  • Easing liquidity regulations, additional rouble liquidity via extending the CBR’s Lombard list for REPO operation
  • CBR considers relaunching long-term REPO operations, though current interbank liquidity remains in surplus and stable
  • CBR may relaunch FX-REPO as was in the beginning of 2015 if there is shortage of USD liquidity, however there are very few signs of it now as external debt has dropped by $110 bln and reserves rose by over $60 bln since then

Money market overview

Impact on inflation: shocks to be temporary

  • Inflation will accelerate; however the spike will be short-term, CPI would fall below 4% annual rate as the crisis is driven by demand shock. In other words, disinflationary risks from falling demand prevail over inflationary risks from declining supply.
  • The weekly inflation in March (17-23) has doubled w-o-w
  • Russia’s CPI accelerated to 2.5% y-o-y in March up from 2.3% in February 2020, While investors expected CPI to pick up 2.7%.

Comment on CBR key rate: rate cut is back on radar

  • CBR is looking to cut rate as market volatility will ease, our base-case scenario for June is a 25-bps cut to 5.75%, provided no major negative news and no additional shocks.
  • Following the most recent meeting on March 20, CBR confirmed that market climate improved, and volatility has subsided after unprecedented QE and stimulus measures announced by the US, European and other global central banks.

Impact on economics: downturn expected in Q1 and Q2, pickup in Q3

  • The rule of thumb is that one month of quarantine costs up to 1.5-2% of annual GDP, but accumulated impact will depend on how long the quarantine measures will last. Recovery is expected in Q3, so overall decline will be normalized. Expected monetary easing will also help prevent a steeper GDP slowdown.
  • Economic slump will accelerate if financial crisis pushes more companies into bankruptcy.

Impact on USDRUB and OFZs: as good as it gets

  • MinFin continues to sell FX as part of the budget rule that applies if Urals price drops below $42/bbl According to CBR statistics, Minfin sold 175 bln roubles in USD equivalent, or roughly $2.4 bln since March 11
  • That said, long OFZ yields dropped by 160-200 bps, implying a 14-16% price growth since March 18
  • If Brent prices normalize at 45/bbl, implying Urals just above 42/bbl, USDRUB could stabilize in the 72-68 range
  • So after market recovery we expect a 90 bps drop in long OFZs yields, or a 8-10% price pick-up to February 20 levels before major sell-off

Macro simulation analysis

Macro simulation analysis

Source: ITI Capital

MinFin daily FX-interventions via CBR, ₽ bln

MinFin daily FX-interventions via CBR, ₽ bln

Source: Bank of Russia, ITI Capital

FX-Sales by Minfin including $30 bln proceeds from Sberbank

FX-Sales by Minfin including $30 bln proceeds from Sberbank

Source: Bloomberg, ITI Capital

Russian OFZ yield curve

Russian OFZ yield curve

Source: Bloomberg, ITI Capital

USDRUB intraday performance after the oil price spike and CBR comments today

USDRUB intraday performance after the oil price spike and CBR comments today

Source: Bank of Russia, ITI Capital

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