Rates Weekly - June 16, 2020

> Ruble liquidity: Overnight rates to drop closer to 4.5% by end of the week due to expectations of 100 bp cut from CBR. Over the last week, demand for ruble liquidity declined, with banks "under-averaging" and O/N rates pressured lower by market expectations of a 50-100 bp cut this Friday. Recently, expectations of a 100 bp cut have only strengthened, and today's CBR weekly deposit auction with a limit of R1.3 trln was more than twice oversubscribed. Thus, we think that banks' demand for liquidity could drop sharply on Thursday-Friday and that they might ramp up their 4.5%-fixed rate deposits at the CBR by R1 trln. We expect O/N rates to fall closer to this level, to about 4.7%, before the weekend. As for next week, when a rate cut would take effect, demand for ruble liquidity will pick up and O/N rates should move closer to the key rate.> OFZs and rates: A CBR rate cut is coming this Friday, we expect 50 bps. We expect it to cut the key rate by 50 bps to 5% and to show a willingness to lower rates to as low as 4% by end-September, implying 50 bp cuts at the next two meetings each. Tomorrow, the Finance Ministry will offer the 10y OFZ 26228 (April 2030, 7.65%), 5y OFZ 26234 (July 2025, 4.5%) and CPI linker OFZ 52002 (February 2028, 2.50%). The latter will be offered with a limit of R10.9 bln. We expect R40-60 bln in each of the nominal issues to be placed. Expectations of shrinking real rates should help the ministry place the entire volume offered of the CPI linker.