Rates Weekly - March 16, 2021

> Ruble liquidity: O/N rates trending higher ahead of potential key rate hike, taxes. Ruble liquidity was balanced over the past week. This week, the CBR conducted a weekly deposit auction with a limit of R1.8 trln, but absorbed only R1.4 trln, versus R1.9 trln last week. Banks have probably underutilized the CBR deposit auction and decided to over-average in advance of a potential 25 bp rate hike on Friday and large tax payments (about R1.2 trln) due on March 25. Against this backdrop, demand for liquidity will likely be high and O/N rates could rise to 4.25% by Friday and, if the CBR does in fact hike on Friday, even higher early next week.> OFZs and rates: CBR looks set to raise key rate by 25 bps on Friday to 4.25%. We believe that if the CBR raises the key rate on Friday by 25 bps and signals further hikes in April and June (see our CBR preview), then long-dated ruble rates are likely to remain unchanged, reflecting market confidence that the regulator can soon bring inflation under control. Meanwhile, tough comments from the CBR on inflation could push short-dated rates higher still. At tomorrow's OFZ auctions, the Finance Ministry will offer three issues: 5y and 10y nominals and a 10y linker. We expect R50 bln to be placed.