15 Mar 2018 17:28

Carry-trade operations losing appeal - Central Bank

MOSCOW. March 15 (Interfax) - Carry-trade operations are losing some of their appeal with a reduction in interest rates on currency swaps and increasing volatility in the ruble exchange rate, the Central Bank of Russia (CBR) has said in its banking sector liquidity report.

"Due to increased volatility in global markets and reduced oil prices, ruble exchange rate volatility has noticeably grown in February. At the same time, volatility growth adjusted for oil price volatility was not very substantial. Against this backdrop, as well as due to reduced interest rates on currency swaps, the appeal of carry-trade transactions has somewhat decreased," the CB said.

February saw a number of events substantially impacting the Russian financial markets: a sharp decline in global markets at the start of the month, the Central Bank's decision to lower the key rate and an upgrade to Russian sovereign credit rating to investment level, the CB said. "These factors had a varied influence on certain market segments, but the overall market situation continued to improve," the regulator said.

Growth in volatility and a drop in global equity markets had the greatest influence on the Russian currency market and Russian stocks. The majority of those selling assets in this period were foreign investors, according to the CBR.

"The situation returned to normal pretty quickly due to an improved situation in external financial markets, but foreign investors remained cautious: certain strengthening of the ruble and growth in Russian equity markets were spurred primarily by purchasing by internal investors, as opposed to a return of non-resident capital," the bank said.

The only exception was the currency swap market, where non-residents first shortened their long ruble positions, and then returned them to their previous levels by the end of the month, the regulator said.