The key event today is the CBR’s monetary policy meeting: the market is looking for a rate cut and only its size is under debate. In particular, front-end NDF rates have rallied this week, so a 100bp rate cut could even be a disappointment now. Yesterday, 1M NDF picked up 11bp to 14.1%, but 3M NDF declined a further 30bp to 14.8% and 6M NDF was down 45bp to 14.2%. Subsequently, the curve steepened visibly, with the 3m12m NDF spread now standing at -145bp, up from -240bp at the end of February. As we have argued before, price action in the NDF curve looks overdone, so we recommended taking profits on short rate positions and re-allocating to longer tenors; specifically, we like the 1s2s steepener on the XCCY swap curve.
On the liquidity side, the situation remains comfortable so far, as the balance of banks’ correspondent accounts in the CBR remains near RUB 1.4tn. In light of this, the Treasury managed to allocated only RUB 5.0bn on deposit yesterday in a single bank out of the RUB 50bn offered. On the other hand, banks increased the debt under the 312-P refinancing facility by RUB 245bn. However, we highlight that today the Treasury is withdrawing a large chunk of deposits, which could add tension to the money market. Yesterday, the overnight FX swap rate closed at 14.64%, while the weighted-average rate declined to 14.70% (-41bp).