Rates Weekly - August 25, 2020

> Ruble liquidity: O/N rates to drift lower next week amid inflow of liquidity as end of reserves averaging period nears. O/N rates have remained stable and relatively low at around 4.1% over the past week despite significant outflows related to taxes. This owed to the fact that banks had accumulated significant volumes of reserves in advance. We expect the liquidity situation to remain balanced for the rest of the week and think banks' current accounts at the CBR should remain at about R2.45 trln, which is the level they need to maintain until the end of the current reserves averaging period. So, O/N rates should stay near 4.1%. However, next week we expect significant liquidity inflows due to the budget spending that traditionally takes place near the end of the month. This should push O/N rates down to 4.0% early next week, and then perhaps even below that up until September 8, when the averaging period ends.> FX liquidity: FX liquidity probably past the worst this year, but pace of recovery remains uncertain. The latest CBR banking statistics show that in July FX liquidity dropped $5 bln to about $28 bln. In late July-early August, however, the O/N basis did not fall as low as one might have expected given the low FX liquidity, which might be explained by a higher current account surplus amid rebounding oil prices and higher O&G exports over the last month. We expect FX liquidity to keep expanding throughout the rest of the year, assuming Russian non-financial corporates will refinance their foreign debt with Eurobonds in September-October, the time following summer when primary activity usually heats up. However, rising geopolitical tensions could put a drag on this. If they do, FX liquidity could drop in September and especially October.> OFZs and rates: Finance Ministry to offer floater at tomorrow's OFZ auctions. The remainder of the registered volume in the floating-rate 4y OFZ 24021 will be auctioned (R131 bln). The issue's discount margin has dropped 4 bps to 34 bps since an auction for it was called off on August 12. We do not expect demand to be very high, with R20-40 bln being taken up and no premium to the secondary market being offered.