Rates Weekly - June 23, 2020

> Ruble liquidity: Overnight rates to climb on rising demand for liquidity, tax-related outflows. Last week, O/N rates declined, as we had expected, given the low demand for ruble liquidity amid expectations of a 100 bp cut to the key rate on Friday. This week, however, there will be high demand for ruble liquidity, as banks need to meet reserve requirements. There will also be R500 bln worth of outflow on Thursday related to tax payments. So banks will likely rely on borrowing from the Federal Treasury at an implied rate equal to the key rate in order to compensate for this outflow. We expect O/N rates to climb to at least the key rate of 4.5% or higher.> OFZs and rates: CBR's 100 bp rate cut, weak 1y repo auction spur correction in OFZ market. The CBR cut the key rate by 100 bps on Friday, but said such a big cut is a one-off. We expect a 50 bp cut at the July meeting and then think that rates will be left unchanged for some time, as the CBR says it is not ready for negative real interest rates, at least for now. Yesterday, the CBR held a 1y ruble repo auction, offering R400 bln at a minimum rate of 4.75%, but managed to place only R5 bln.