Russian banks draw over 3trn rubles at 1-day repo auction

Country’s central bank allotted full amount on offer, the highest amount since 2014

Russian banks have drawn short-term cash from the country’s central bank on levels not seen since 2014, in an attempt to soften the blow from international sanctions.

The results of the latest repo auction published today (February 28) show the Bank of Russia provided 3.04 trillion rubles ($30.2 billion) to Russian banks, at a cut-off rate of 20%.

The liquidity provided had a maturity of 1 day, and matched the full amount of bids received.

 

 

The previous repo auction, held on February 25, allotted 1.93 trillion rubles for three days, at a rate of 9.6%. On the day of Russia’s invasion of Ukraine, the total amount stood at 974 billion rubles, at a rate of 9.7%.

Risk Quantum analysis shows the latest repo auction is the seventh-largest since the Russian occupation of Crimea began in 2014. The peak auction occurred on May 6 of that year, with the central bank providing 3.3 trillion rubles of liquidity, at a rate of 7.5%.

What is it?

A repurchase agreement, or repo, is a short-term borrowing facility for banks. Dealers submit bids for borrowing central bank funds on a collateralised basis, and it is a common tool used by central banks to provide liquidity and control the amount of reservable funds present in the banking sector.

Why it matters

In an attempt to reassure the country’s banking sector amid an unprecedented raft of economic and financial sanctions, the Bank of Russia announced on February 27 it would hold a “fine-tuning repo auction… on an unlimited basis”.

Before the auction even began, the central bank more than doubled interest rates, boosting its main rate to 20% from 9.5%. Shortly after, the ruble tumbled almost 30% to $118, before recovering slightly and hovering around the $100 mark.

The repo auction outcome shows demand for rubles spiked to levels last seen at the height of the Crimean crisis, eight years ago. Since the invasion of Ukraine started last week, the central bank has injected almost $60 billion into the country’s banking sector. For comparison, Russian dealers drew around $21 billion throughout 2021.

Whether the latest liquidity boost will be enough remains to be seen. But some early signs coming from Russia’s largest bank don’t bode well for the rest of the system. This morning (February 28), the European Central Bank announced that Sberbank Europe – a fully owned subsidiary of Sberbank – was “failing or likely to fail” due to deteriorating liquidity conditions. It shouldn’t come as a surprise if a number of Russian banks find themselves unable to pay debts and provide cash to their customers in the coming days.

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