Yesterday, banks’ total current account balances with the CBR declined near RUB 200bn to RUB 1.2tn, while the amount on CBR deposits also decreased by almost half to RUB 243bn. Monday’s taxes were the key source of liquidity outflow: according to the CBR’s data, the budget sterilised some RUB 427bn in VAT, MET and other taxes on that particular day. Today, banking liquidity could narrow further, as the CBR provided only RUB 2.07tn at the one-week repo auction, leaving RUB 461bn of unfulfilled bids. The average rate was 17.44%. Unless banks tapped the standing overnight repo facility, the total volume of outstanding repo would decrease RUB 130bn today. Meanwhile, the Treasury allocated RUB 143.3bn on two-week deposits at an average rate of 17.5%. However, RUB 100bn of outflow from State Pension Fund deposits would undermine the state’s liquidity injection. In the nutshell, banking liquidity could shrink RUB 80-100bn more today, but it could well be offset by the continued rapid decrease of cash in circulation. January to date, RUB 937bn of cash has returned to the banking system after December’s turmoil, which is markedly above the average monthly figures in previous years. Overall, the liquidity balance remains comfortable, despite latter fluctuations, so overnight rates remained sticky around the key benchmark rate. Therefore, the overnight FX swap closed at 17.02% yesterday, while RUONIA had likely stayed near 16.90%. Nevertheless, NDF rates jumped 2.0-3.0pp on the front end, with the 1M closing at 22.6% and 3M at 22.10%. Longer-dated NDFs also felt upward pressure, with the 12M NDF gaining 1.4pp to close at 17.97%. At the same time, further XCCY swap tenors remained mostly unchanged, while the very long end rates (6-10 years) actually tightened 30-50bp. In our view, NDF price action was due to the volatility spike in the FX spot market after the S&P rating action. However, as RUB rebounded yesterday on the back of oil prices, we believe that NDFs are likely to calm down. In particular, we highlight that onshore, the 1M XCCY swap rate on the MICEX actually closed at 15.5% yesterday. We believe that it makes sense to sell NDFs on spikes here, because the medium-term liquidity outlook is positive, in our view, since the CBR has refrained from large FX interventions, while the budget is likely to supply liquidity from the Reserve Fund.