Rates Weekly - December 10, 2019

> Ruble liquidity: O/N rates to be pressured this week by CBR rate cut expectations. This Wednesday-Friday, we expect the O/N interbank rate to remain subdued at about 6.2%, as bank demand will be low ahead of what the market expects to be a 25 bp CBR rate cut. However, on Monday demand for liquidity will pick up, while there will be a liquidity outflow due to pension and insurance payments. Thus, rates should remain elevated early next week at levels close to the new key rate.> OFZs and rates: CBR to opt to cut 50 bps on Friday with hawkish statement. We expect the CBR to cut the key rate by 50 bps to 6.0%, as year-end inflation is set to deviate from the CBR's forecast, while inflationary risks have even eased since the last decision to cut by 50 bps in October. We also expect the bank to retain its inflation-neutral range for the key rate at 6-7%, though it may allow for a temporary cut below that if disinflationary risks persist. Tomorrow, the Finance Ministry will auction off the new 8y OFZ 26232 (October 2027). We expect relatively high demand, as R150 bln of OFZs will be redeemed tomorrow as well. We think the Finance Ministry may opt to place a small volume to ensure a low premium to the secondary curve. The placement will probably go through at 6.31-6.34%.