Rates Weekly - October 26, 2021. Finance Ministry Switches Back Into Defensive Mode for this Week's OFZ Auction

> Ruble liquidity: O/N rates set to slide as tax period ends. This week, the CBR conducted a weekly deposit auction with a limit of R0.8 trln - R0.3 trln more than what it absorbed via the same instrument last week. However, banks attempted to place much more - R1.3 trln, which indicates that some banks are carrying a lot of excess liquidity right now. They will need it to conduct R1 trln in tax payments this Thursday, and some may even borrow around R0.4 trln via Federal Treasury repo. So by the end of this week, the liquidity situation will likely be balanced and O/N rates could stay around 7.4%. We expect excess liquidity to reemerge next week due to seasonal budget-related inflows and the approach of the end of the current reserves averaging period on November 11. So, early next week we could see O/N rates slide to 7.2-7.3%. > OFZs and rates: Finance Ministry switches back into defensive mode for this week's OFZ auction. Given the spike in market volatility, the Finance Ministry has decided to only auction off one OFZ issue this week. The issue on offer will be the 11y CPI-linked OFZ 52004 (March 2032), and R10.1 bln will be on the block. We have little doubt that the full amount will be placed. It is likely that local investors will be relatively inactive next week, which has been declared a non-working week in Russia, so the Finance Ministry could opt against auctioning off nominal papers next Wednesday as well.