Rates Weekly - January 14, 2020

> Ruble liquidity: O/N rates to stay low thanks to ample ruble liquidity. At the end of last year, the RUONIA rate rose to 6.23% amid tighter liquidity conditions. Since then, liquidity has flowed into the system, pushing it back down to around 6%. We expect it to stay close to this level, as we anticipate a liquidity surplus of about R0.5 trln over the coming week due to a R1.1 trln net inflow stemming from CBR operations. Moreover, the CBR has raised the minimum price for its coupon bonds, which probably means that it is willing to tolerate O/N rates at somewhat lower levels.> FX liquidity: O/N basis to rise on FX liquidity inflow. At the end of last year, the O/N basis turned negative due to an FX liquidity outflow from Gazprom's $3 bln payment to Naftogaz Ukrainy. In the beginning of this year, it has dropped further, to -30 bps, amid excessive ruble liquidity. We expect it to recover to zero this month, as FX liquidity will be flowing in due to a seasonally high current account and corporate Eurobond placements.> OFZs and rates: Finance Ministry to auction 8y and 20y OFZs tomorrow. With yields on the decline this month, the Finance Ministry has opted to offer two issues instead of one and has not set limits for the auctions. We cautiously expect around R50 bln to be taken up in each issue, as the start of the year usually brings inflows into the OFZ market. Meanwhile, the latest CPI data for December-January leads us to believe that the CBR will cut the key rate by 25 bps to 6.00% in 1Q20, and it seems like the chances of a cut in February versus a cut in March are rising.