Russia's Finance Ministry remains focused on current borrowing program, sees signs of market stabilization

MOSCOW. Oct 31 (Interfax) - Russia's Finance Ministry remains focused on the borrowing plan for the domestic market in the fourth quarter, which it has fulfilled by less than 5% in October, sees signs that the situation is gradually calming and plans to enter the market as before once the situation has stabilized, Deputy Finance Minister Vladimir Kolychev told reporters.

The Finance Ministry plans to place Russian federal loan bonds (OFZ) totaling 2.4 trillion rubles in the fourth quarter.

"We are generally guided by the current program. We are also listening to the market situation, and are treating it carefully. Therefore, when there is increased uncertainty in the financial markets, as now, as associated with various factors, then we try not to exacerbate the situation with our initial offer, and we indeed suspend placements. However, we believe that the effect is temporary, and we intend to enter as planned once the market situation has stabilized," Kolychev said.

Kolychev said that the last two auction days saw placements cancelled owing to the applications being unacceptable to the Finance Ministry.

"Moreover, OFZ were placed at a fixed rate yesterday, and there was rather a pleasant demand given the recent times. This is one of the signs that the situation is generally, gradually calming," he said.

Responding to when the Finance Ministry expects stabilization, Kolychev said that the ministry adjusts to the situation and does not forecast it. "Secondly, we strive to conduct policy so that it does not exacerbate it even more," he said.

Commenting additionally on the likelihood of an increase in the supply of floaters by the end of the year, Kolychev said that the current situation for fixed-income instruments is worse than for floaters.

"This is at least noticeable according to the market assessment. On the other hand, there are discussions on whether it is worth fixing it for a long period at the current elevated level of interest rates, meaning that this argumentation is also present. We will reach a decision based on the balance of the overall situation and how advisable it would be to fix high interest rates on the cost of government debt for a long period," he said.

He said the OFZ yield curve "has become even more inverted" which is, by and large "a sign that the market expects such rates will not persist in the long term."

In general, in the medium term, the Finance Ministry still intends to reduce the share of floaters, although in the short term it may increase. "We will endeavor to reduce this share. The issue of changing medium-term priorities is not subject to any discussions or doubt. Over the past few years, the rising cost of national debt servicing has clearly shown that this share is now beyond optimal - more than 50% of that growth is due to interest rate risk in floaters. But at the same time, there is a short-term situation, which, naturally, influences our decisions. Whatever the case, even if the share increases in the short term, we will systematically reduce it in the medium term," Kolychev said.