Rates Weekly - December 17, 2019

> Ruble liquidity: O/N rates to rise 20-30 bps on growing demand for liquidity, could remain relatively high at year-end: O/N rates tumbled last week, as demand for liquidity was low on expectations of a CBR rate cut. However, now that the cut has actually been delivered, banks' demand for liquidity should rise, as they will need a lot of it to meet the required reserves ratio (given the upcoming tax payments) and to conduct corporate client transactions, which tend to pick up at year-end. Meanwhile, this upcoming week (from Wednesday to Tuesday) we see liquidity flowing out - and thus rates should rise - while banks likely won't meet the reserves ratio ahead of time. So, demand for liquidity will probably stay high until the end of the year, when we expect high liquidity inflow due to budget spending. But this probably means that rates won't drop much then. > FX liquidity: Short-term ruble swap rates to rise despite fears of global FX liquidity squeeze close to year-end: Fears of a global liquidity squeeze later in the month have pushed implied rates of short-term EUR/USD and USD/JPY FX swaps significantly lower and have also weighed on those of USD/RUB swaps. However, we expect local FX liquidity to remain comfortable, while demand for ruble liquidity should also be high. Thus, we recommend paying 2w USD/RUB swap rates.> CBR's 25 bp cut was in line with market expectations: The bank also said it needed time to assess how monetary policy should evolve but promised to consider another rate cut in 1H20. This is roughly in line with market expectations, which imply a 25 bp rate cut in March. At tomorrow's auction, it is quite probable that the R29 bln of the 5y OFZ 26227 (July 2024, R29 bln) being issued will be placed in full, while only R10-15 bln of the 20y OFZ 26230 (March 2039, 7.70%) will be sold. However, this is not a risk for the Finance Ministry, as it needs to place only R50 bln by year-end on two auction days.