Rates Weekly - April 7, 2020

> Ruble liquidity: CBR liquidity injections via repo auctions were more of a precaution than a sign of significant money market problems. Ahead of the first non-working week, which started on March 30, there was high demand for cash in circulation and hence for liquidity. In order to meet this demand the CBR injected R850 bln via repo auctions last week. Once things normalized the CBR started actively conducting fine-tuning deposit auctions to absorb the excess liquidity. After a temporary dip O/N rates returned to normal levels. Starting tomorrow, when the new reserves averaging period starts, we expect liquidity to be balanced. Also, given the recent ruble appreciation and stabilization of global markets we don't expect any significant spike in demand for liquidity, and think that O/N rates will remain a bit below key rate, while the CBR will likely halt repo auctions.> OFZs and rates: OPEC+ in the spotlight this week. If OPEC+ fails to agree on output cuts, we would expect a selloff in the OFZ market alongside a rise in rates, with foreigners accounting for much of the selling. OFZ yields would most likely climb, but more slowly than swap rates. At a press conference on Friday, CBR Governor Elvira Nabiullina noted that the bank sees some scope for key rate cuts this year given the many medium-term disinflationary factors in play. The markets are already beginning to price in a key rate cut in 2020, perhaps even as early as this month. While we also expect rates to be lowered this year, we think April would be too soon given the prevailing risks to financial stability. The Finance Ministry will hold an OFZ auction tomorrow, seemingly to gauge demand for three different types of issues. Since the OPEC+ meeting is scheduled for the next day, we expect demand to be relatively weak.