Banks Get an Infusion of $10.7Bln

The Central Bank placed 274 billion rubles ($10.7 billion) of one-day funds into the banking system Wednesday -- the biggest injection at its twice-daily auctions since November 2007.

Money-market liquidity has been sapped by a flight of capital, with foreign investors spooked by the fall in oil price, administrative wrangles at major companies, and the political fallout of the military conflict with Georgia.

Other pressures on liquidity include demand from companies unable to refinance foreign loans abroad because of the global credit crunch, and tax payments due at the end of the month.

Overnight rates in the interbank money market held near 8 percent Wednesday, compared with levels around 4.5 percent seen in early August, before the Georgia conflict.

And the country's equity markets hit new two-year lows, suggesting the capital flight, and thus liquidity problems, are yet far from over.

"Next Monday, the volume at the repo auctions should reach 300 billion rubles due to tax payment," Raiffeisen bank said in a note.

"In the days after that, we expect the pressure on the money market to reduce as the Finance Ministry should provide the necessary funds in the next round of deposit auctions."

The lack of liquidity has made market players reluctant to invest available cash in bonds, although it might have one potential benefit for the market. Rising interbank money rates might make domestic players reluctant to take their money out of the ruble.

"It is possible that next week ... the ongoing liquidity squeeze will lead to ruble appreciation," UralSib said in a research note.