Rates Weekly - April 21, 2020

> Ruble liquidity: Ruble liquidity inflow ahead, but whether O/N rates fall will depend on the ruble. Last week, O/N rates moved well above key rate amid a mild liquidity deficit and a selloff in the ruble. However, about R500 bln of ruble liquidity will flow into the system tomorrow given the cut to the limit at the CBR's weekly deposit auction this week. Also taking into account that the CBR is expected to cut the key rate on Friday, O/N rates could be set to drop rather significantly. However, since the ruble has weakened several percent versus the dollar over the last few days, the markets have become much less certain that the key rate cut will be cut. We think that if the ruble weakens to USD/RUB 80 or beyond that over the next two days, which is certainly possible in light of the recent drop in oil prices into negative territory, the CBR could postpone the rate cut. In this case, O/N rates would probably stay close to the key rate and could even rise next Monday-Tuesday amid tax outflows. The CBR could then move to inject liquidity back into the system via fine-tuning repo auctions and perhaps also via its soon-to-be-launched 1y repo operations.> OFZs and rates: CBR to face difficult decision on Friday. Given the rhetoric of CBR Governor Elvira Nabiullina at last Friday's press briefing, we are inclined to believe that we will see a 50 bp cut rather than a standard 25 bp cut this Friday, if the ruble remains more or less stable this week. On the other hand, if the ruble depreciates beyond 80 and does not show signs of stabilization, the rate would much likely be left on hold.