A debut auction of forex repos by Russia's central bank on Wednesday met with lacklustre demand, with analysts saying banks were deterred from taking up the offer by a relatively high interest rate and short-term nature of the instrument. The $50 billion repo programme is seen as one of the steps to shore up the rouble, which has been plunging as a result of falling oil prices and the impact of Western sanctions imposed over Ukraine, at a time when Russian companies need billions of dollars to pay impending foreign debt payments.
The central bank has said that the scheme will "help smooth a possible rise in volatility of the exchange rate". By providing an alternative source of dollars and euros, the repos - loans that are collateralised by banks' holdings of securities - should help reduce demand for forex on the currency market, reducing the selling pressure on the rouble.
But there was little to suggest any thirst for dollars at Wednesday's auction, with banks bidding for only $201.2 million - a fraction of the $1.5 billion that was an offer. "Quite clearly $200 million looks quite tiny," said Maxim Korovin, fixed income analyst at VTB Capital. "I honestly think that a lot of banks were discouraged by the pricing - 2.4 (percent) for just one month looks a lot. Given that it was collateralised, the spread over LIBOR should not be high."
The average yield was 2.4039 percent. The central bank had earlier set a minimum yield of 2.4035, determined as a spread of 2.25 percentage points above the dollar London Interbank Rate (LIBOR). Korovin also said that limited demand for the new facility reflected heavy interventions by the central bank to defend the rouble, providing a steady flow of dollars into the market that dwarfs the amount available from the new repo facility. So far this month the central bank has expended over $20 billion in forex reserves, with daily amounts of $2-2.5 billion typical in recent days.
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