The Russian Ministry of Finance released an updated draft version of a three-year rolling budget, which indicates a shift from a kind of austerity and strong federal budget surplus toward a more generous spending policy, which should be generally supportive for economic growth. The economy is going to benefit not only from some additional government spending on various national projects, but also from less distorted environment on the money markets, including elevated interest rates and the fact that money market rates are below the key rate. The latter implies banks have no demand for refinancing from the CBR.
A much smaller surplus will discourage Minfin from pumping unnecessary cash into the system – even though the Ministry will keep buying FX, there will be less spare cash to deposit in banks. Moreover, assuming a lower oil price, Minfin’s interventions on the FX market are set to subside which will cause a convergence between the key rate and the money market rates.
In such an environment banks’ demand for the CBR refinancing may start growing, which in turn may increase the banks’ demand for OFZs, i.e. collateral with no haircut. Even though next year’s government borrowing program looks quite ambitions, it will be supported by the demand from banks.