Spike in rates for yuan liquidity due to several factors, could happen again - VTB

MOSCOW. March 26 (Interfax) - The recent sharp increase in interest rates for yuan liquidity in Russia was due to a combination of several factors, but the situation is gradually improving, the first deputy CEO of state bank VTB , Dmitry Pyanov said.

Until the middle of February, there was sufficient liquidity to keep rates at an acceptable level, he said.

"All the most interesting things, with a different degree of amplitude, started to happen on this market when the Chinese New Year began, on February 17 the yuan system in Russia was knocked off balance. We're not highlighting any one factor. We saw that this was a confluence of many unidirectional factors that led to the unbalancing of the system," Pyanov told reporters.

The market was affected by a reduced influx of forex revenue, "possibly related to the sanctioning of leading oil exporters," he said.

The behavior of corporate clients also changed, as they sought to earn more on deals with yuan, and the redemption of several corporate bonds increased demand for yuan liquidity, he said.

"We saw dramatic changes in overnight rates on some days. And the regulator, as we see, is not interested in stabilizing the money market for yuan, because this limits the power of its monetary policy. We heard an interpretation that rates on the Russian yuan market should near the ruble due to the lack of a stable supply of this currency. So we also won't see any source of last resort and we won't see it due to ideological considerations," Pyanov said.

But rates for yuan liquidity are now stabilizing, he added.

"Is a repeat of this situation possible in future? In my view, it's possible. That is, the market is narrow and a combination of these factors in the next period can also destabilize it the same way. Accordingly, could this have some medium- and long-term consequences in client behavior? It's possible. This is the reality in which we will live. Our understanding is that the market will gradually calm down and sometime by late spring-early summer we might again see one percent rates like we saw before February 16," Pyanov said.

The Central Bank said earlier that the temporary increase in the cost of yuan liquidity in early February and stronger demand for its swaps in this currency were due to the outflow of client funds from some banks ahead of the Chinese New Year, some increase in forex financing of clients in preceding months and a decrease in lenders' available forex liquidity.