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. Last Updated: 07/27/2016

Cash Crunch Eases But Is Still Not Over

The worst of the liquidity squeeze in the country's banking system may pass in days, but it will be some time before the situation normalizes, analysts said Tuesday.

The Central Bank pumped a record 272 billion rubles ($10.6 billion) into the banking system Tuesday via one-day repo auctions. It also reduced the "haircut," or discount, it sets on securities that banks can pledge to secure ready cash.

Analysts said monthly profit tax payments would drain around 200 billion rubles from the banking system Tuesday, but they expected liquidity conditions to improve in the days ahead.

"We do expect it will ease next week," said Natalya Orlova, banking analyst at Alfa Bank.

The Central Bank has won high marks for acting quickly to keep the financial system liquid as foreign investors hurt by the U.S. subprime mortgage crisis pulled cash out of risky Russian assets.

"The Central Bank is coping with the situation," said Richard Hainsworth, general director of local ratings agency RusRating. "All you hear is noise. There's no real panic, and no signs of a bank going under."

But don't relax just yet. Overnight money market rates this week approached 10 percent, the level of the Central Bank's rarely used refinancing rate and above the one-day repo rate of just over 6 percent.

"We might be able to take a breather after the tax payments, but not for long -- banks have borrowed too much from the Central Bank," said Nikolai Kashcheyev, chief economist at VTB.

Alexei Moiseyev, an analyst at Renaissance Capital, reckons there are up to 2.5 trillion rubles in securities outstanding that the Central Bank would accept for repo operations.

"While a good portion of these bonds is held outside the Russian banking system, it is still likely that banks possess sufficient potential collateral to borrow from the Central Bank and live through the tax payments week," he said in a note.