UPDATE 2-Banks ignore Russia’s first month-long liquidity auction in seven years

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(Adds comments from bankers)

MOSCOW, May 25 (Reuters) – Banks mostly ignored the Russian central bank’s first month-long liquidity auction in many years on Monday, preferring funds with shorter maturity in what the central bank described as evidence there is adequate liquidity in the system.

The central bank normally provides the market with rouble liquidity at one-week repo auctions. For the first time since 2013, Monday’s repo auction offered up to 500 billion roubles ($7 billion) to banks willing to park OFZ treasury bonds as collateral for a full month.

Only one lender took part, the central bank said without identifying the lender.

The central bank said the limited demand for the longer-term liquidity was not unexpected, and confirmed that the current liquidity level in the banking system is sufficient.

A top executive at a major Russian bank in Moscow that usually takes part in repo auctions said banks have ignored the new auction “as they still have money”.

The funds were offered at a minimum rate of 5.6%, slightly above the bank’s key rate of 5.5%, which it has pledged to cut in June to support an economy hit by the novel coronavirus crisis and related lockdowns.

“The system retains liquidity surplus, that was the main reason for poor demand,” said Sofia Donets, chief economist at Renaissance Capital.

Some state banks have asked for longer-term repo auctions to buy OFZ bonds, the issuance of which the finance ministry plans to double this year to 4.0-4.5 trillion roubles as it needs funds to fight an economic fallout from the new coronavirus.

The central bank said it will continue holding longer term repo auctions to support market liquidity according to its schedule. It will next test demand for long-term rouble liquidity at a one-year repo auction due on June 22.

That auction could draw higher demand as such long-term funds are a “rare thing” for the Russian market, said a source with another major Russian bank who asked not to be named.

$1 = 71.5600 roubles
Reporting by Elena Fabrichnaya, Andrey Ostroukh and Tatiana
Voronova; Additional reporting by Maria Kiselyova; Editing by
Katya Golubkova, Peter Graff and Jan Harvey

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