Rates Weekly - April 13, 2021

> Ruble liquidity: O/N rates remain high and demand for liquidity rising as 50 bp rate hike expectations build. Last week, the new reserves averaging period started. There was ample liquidity, but banks' demand for it was high, as they wanted to over-average given the growing expectations of a 50 bp key rate hike from the CBR on April 23. Against this backdrop, banks placed just R1 trln with the CBR at today's weekly deposit auction, down from R1.5 trln last week and well below the R1.8 trln limit. Over the next week, we expect banks' correspondent accounts at the CBR to average around R3.7 trln, or about R0.8 trln above the required level. Such a cushion would likely prevent O/N rates from rising further, but expectations of a 50 bp key rate hike will keep them elevated. We expect the RUONIA to stay around 4.5%, with the O/N FX swap and repo rates continuing to hover near 4.6%.> OFZs and rates: Geopolitics-driven correction in ruble rates. The last week was not bad for local EM debt markets, as US Treasury yields remained stable. However, the OFZ market traded in the red due to rising geopolitical concerns and a weakening ruble. The CBR published its monthly report on inflation yesterday, estimating that price growth in most categories of products and services rose in March when adjusted for seasonality. All things considered, we still expect the CBR to hike rates when it meets next Friday - the question is whether it will decide on a 25 bp or 50 bp increase. The just issued CBR report, together with the elevated exchange rate volatility, adds to the arguments in favor of a faster normalization of CBR monetary policy. In this case, it is highly likely that intermediate issues (up to 7y) will continue to rise in yield more than the longer segment of the curve, since the former are more sensitive to CBR key rate changes.