Rates Weekly - April 20, 2021

> Ruble liquidity: Ample liquidity pushing down O/N rates despite expectations of 50 bp key rate hike. Over the last week, banks were actively hoarding liquidity ahead of the CBR meeting this Friday, which most market participants expect to deliver a 50 bp hike to the key rate. Banks' correspondent accounts grew to R3.8-4.0 trln, more than R1 trln above the required level. As a result, since liquidity has remained ample, yesterday and today O/N rates fell to 4.2-4.3% even though demand for liquidity has remained high. We expect them to move even lower this week, as liquidity will continue to grow. Next Monday-Tuesday, after the likely 50 bp key rate hike comes into effect and R1 trln in tax payments are made, O/N rates could climb to about 4.7%, but probably not much higher, as there will still be around R0.7 trln of excess liquidity. Later, banks will likely try to place all of this on CBR deposits, and O/N rates could climb to 4.8%.> OFZs and rates: US sanctions materialize, CBR decision due on Friday. The US announced new sanctions on Thursday, including a ban on participation in OFZ auctions by US financial institutions starting June 14. After the sanctions announcement, ruble rates, including OFZ yields, fell 10-15 bps starting at midday on Thursday, as it seems that the markets had been afraid of harsher sanctions. As for the upcoming CBR decision, we see a 50 bp rate hike amid the still-high inflation, as the CBR did not try to turn markets away from the view for a 50 bp hike. Tomorrow, the Finance Ministry will offer R20 bln of the 7y nominal OFZ 26236 (May 2028) and R10.3 bln of the 9y CPI-linked OFZ 26230 (July 2030). If the political environment stays stable, we think both issues should be placed in full.