Rates Weekly - November 27, 2019

> Ruble liquidity: O/N rates to surge, CBR may conduct repo auction if large ruble liquidity deficit forms at end of reserves averaging period. After Monday's tax payments, a R0.4 trln deficit of ruble liquidity arose. The CBR, however, did not change the limit for this week's deposit auction by much, as it expected a R400 bln liquidity inflow from the deposit operations of the Federal Treasury, which ended up failing to place these funds. The liquidity deficit will grow day by day, as there are not many days left in the reserves averaging period, which ends on December 3. So, unless the Federal Treasury places this amount soon, a large liquidity deficit will emerge and O/N rates could skyrocket. Against this backdrop, the CBR may conduct a fine-tuning repo auction, something it has not done since January 2017. Moreover, even after the start of the next reserves period, rates will not fall to the normal level of the key rate minus 15 bps, as we expect ruble liquidity to drain before the last week of December due to an increase in cash in circulation and correspondent accounts at the CBR ahead of year-end. > OFZs and rates: Finance Ministry to place R15-20 bln of nominal 4y OFZ 26223 (February 2024) today. We expect it to place R15-20 bln and then offer the rest on the secondary market in November-December. Over the last week, media reports have come out that suggest NWF investments will be neutral for monetary policy. In addition, the CBR said it does not see an acceleration in budget spending in 4Q19 as a significant pro-inflationary risk in 1Q20. This opens the door for a rate cut in December, which the bank itself has acknowledged.