Rates Weekly - May 26, 2020

> Ruble liquidity: Overnight rates remain a bit elevated, but more signs emerging that liquidity will be abundant. Last week, O/N rates were 15 bps below the key rate, as there was a mild ruble liquidity surplus. This switched to a deficit yesterday due to a R500 bln budget outflow, probably mainly related to taxes. As a result, O/N rates climbed close to the key rate. The CBR offered R500 bln in 1m repo, but there were no takers: it was 20-35 bps more expensive than the alternatives and there is still a R1.5 trln structural liquidity surplus. This week, a mild liquidity deficit will likely prevail and O/N rates will stay unchanged. However, some early tentative signs are appearing that cash in circulation, which has grown by R1.5 trln since March, has started to decrease. If this trend continues in the short term, about R1 trln of cash could return to the banking system and pressure O/N rates.> OFZs and rates: CBR probably will not cut the key rate below 4% this year. Friday's comments by CBR Governor Elvira Nabiullina about the long-term repo facility have compelled us to consider a possible correction at the long end of the OFZ curve. She also said that the real rate would not go negative - meaning it will not be cut below 4.00% this year.