Rates Weekly - March 23, 2021

> Ruble liquidity: After rate hike, O/N rates rise mildly amid ample liquidity; spike in longer rates an opportunity to receive 1m FX swaps, OIS rates. Over the last week, ruble liquidity was ample, as banks, expecting a 25 bp key rate hike, were hoarding liquidity ahead of the decision. Hence, yesterday banks' correspondent accounts at the CBR rose to R3.8 trln, R1 trln higher than the level necessary for reserves averaging, and the O/N interbank and FX swap rates rose by only 10-15 bps to 4.24%. Today, despite there being ample liquidity, banks underutilized the CBR deposit auction by R200 bln. This could be due to R1.9 trln in tax payments to be made later this week or the recent tumble of the ruble and spike in rates and yields (probably due to geopolitical concerns). Even after the large tax payments on Thursday, liquidity should remain balanced and will be flowing in starting on Friday. Hence, we believe that O/N rates could rise to about 4.4% on Thursday but drop to 4.3% by next Tuesday, when the tax period will be over. Later, it could dip even more, as demand for liquidity will be diminishing due to recent over-averaging and the approaching end of the current reserves averaging period on April 6. Hence, we think that currently it is a good opportunity to receive 1m FX swaps and OIS rates at about 4.4-4.5%.> OFZs and rates: Correction in ruble rates looks overdone. We think that ruble rates will be driven over the next week by sanctions headlines. Should local debt remain out of the scope of potential new sanctions, we would expect ruble rate curves to shift lower. The current valuations look excessive from a fundamentals standpoint, in our view, reflecting expectations that the CBR will hike the key rate by at least 100 bps at its next two meetings and by 180 bps before the year-end. Even under the highest inflation assumptions in our base-case scenario, we think the CBR is unlikely to move its policy into restrictive territory - according to the CBR's definition, this would mean a key rate of above 6% - during the next 12 months. Meanwhile, we note that for OFZs, the supply worries have diminished recently, after the Finance Ministry announced plans to cut its 2021 borrowing plan by R0.7 trln.