Rates Weekly - April 28, 2020

> Ruble liquidity: Overnight rates to remain high amid continued liquidity outflow. Last week, O/N rates remained elevated, above the key rate, due to a liquidity deficit that stemmed from a rise in the amount of cash in circulation, the CBR's FX sales and tax payments. To compensate for these outflows, the CBR conducted fine-tuning repo auctions. This week, it has already conducted a R410 bln deposit auction and on Thursday it will conduct a R500 bln repo auction. It is somewhat surprising that the CBR is conducting operations to absorb liquidity and not long thereafter to inject nearly the same amount, as it probably would have refrained from both in normal times. This could just be the CBR taking precautions ahead of the May holidays, when cash in circulation could increase significantly, or it could be a sign that the regulator sees problems with how liquidity is being redistributed in the money market. Whatever the case, even though there is still a significant R1.5-2 trln structural liquidity surplus, which is being mostly absorbed by CBR coupon bonds amid limited short-term deposit operations, the O/N rates should be relatively high, on average slightly above the key rate, as ruble liquidity will keep flowing out of the system.> OFZs and rates: CBR cuts key rate by 50 bps on Friday; statement suggests another 50 bp cut coming in June. Last Friday's rate cut was already priced in to ruble rate markets. As we expect inflation to be lower than the CBR does, we now think the key cut could be lowered all the way to 4.50% by the year-end. Governor Elvira Nabiullina also said she saw the possibility of another 100 bps of rate cuts this year.