The CBR's monetary policy decision was in focus on Friday. The CBR cut rates 100bp, bringing the key rate down to 14% (for details see CBR Monetary Policy Decision – Cautious step; more to follow of 13 March). The market had priced in a rate cut of 100-150bp prior to the policy meeting. Given that the CBR’s decision was at the lower boundary of the expectation range, we would have expected some profit taking in the rates market. However, NDFs closed barely changed and longer-dated XCCY swap rates tightened near 10-15bp. As we have highlighted before, the NDF market rallied visibly the previous week, so an upward correction of 50-100bp would have been justified, in our view. We believe different steepener trades are the best way to play the current monetary policy cycle in Russia. In particular, we like the 1s2s XCCY swap and 5s10s OFZ steepeners.
Liquidity wise, the situation predictably worsened on Friday, as the Treasury withdrew near RUB 162bn from deposits. Subsequently, the total amount of banks' correspondent accounts declined to RUB 1.05tn this morning from RUB 1.27tn on Friday. The overnight FX swap closed at 15.11% and the weighted average rate for the whole session printed at 14.3%.