Rates Weekly - January 25, 2022. Structural Deficit on the Horizon

> Ruble liquidity: Structural deficit on the horizon. The CBR halted FX purchases under the fiscal rule this week. We think the pause will last about three months in order to offset the planned R1.6 trln in NWF investments. Still, given that these investments are only to be launched later this year and are to be spread out into 2024, this will result in a liquidity outflow. With the structural liquidity surplus currently at R0.7 trln and FX purchases of R0.5 trln per month being put on hold, we believe the liquidity balance will turn into a structural deficit in February-March. As a result, the spread of O/N rates to the key rate should turn slightly positive (from negative currently).> FX liquidity: Strong boost imminent. Given the CBR's decision to halt FX purchases, which recently reached a record $0.5 bln per day, we expect FX liquidity to receive a very strong boost. Should the pause in purchases last for three months as we expect, FX liquidity could expand by $15-20 bln over the period. This would take it to $60 bln, or around 20% of Russian banks' FX assets - a level last seen before the 2014 FX crisis. With this level of FX liquidity, we would expect the O/N basis to climb to around 20 bps on average.> OFZs and rates: OFZ auctions cancelled for second week in a row. Not surprisingly, the Finance Ministry has decided to cancel the weekly OFZ auction for the second week in a row to help stabilize the market. Meanwhile, the CBR decided yesterday to halt its hard currency purchases under the fiscal rule. It did not set a date for when they will resume. As a result, the ruble has gained a foothold near USD/RUB 79. The Finance Ministry's and CBR's actions should offset some of the pressure on OFZs, but we still think yields are more likely to keep creeping higher than to start retreating.