Rates Weekly - September 15, 2020

> Ruble liquidity: Liquidity balanced, dynamics of cash in circulation stay normal. Early last week, O/N rates were elevated despite the end of the reserves averaging period. This was due to there not having been significant over-averaging. Moreover, the CBR surprisingly conducted a R700 bln fine-tuning deposit auction on the last day of the averaging period, at which it absorbed R300 bln. This caused a mild liquidity deficit, as the RUONIA rose to 4.38%. Since last Wednesday, when the new period started, ruble liquidity has normalized and the RUONIA has stabilized near 4.1%. Over the next seven days we expect liquidity to remain in balance. There will be some inflow, which technically will result in a surplus of up to R300 bln, but we don't expect downward pressure on O/N rates, as banks will be hoarding liquidity ahead of month-end tax payments. We expect this liquidity inflow to be partially due to lower cash in circulation, which usually happens in the second half of a month, while in the first half higher cash in circulation usually means an outflow. In the first half of this September it rose R150 bln, which is close to its growth for the same period last year. So, after March-July, when cash in circulation grew by an abnormal R2 trln due to the Covid-related financial crisis, for the second consecutive month its dynamics have stayed normal. > OFZs and rates: Tomorrow's auctions to see three different types of OFZs offered; R150-170 bln to be placed. The Finance Ministry will offer three different types of OFZs: the 7y nominal OFZ 26232 (October 2027; R43 bln remaining), the 10y floating-rate OFZ 29014 (March 2026, R115 bln remaining) and the new 10y CPI-linked OFZ 52003 (July 2030). Meanwhile, last week's comments by CBR Governor Elvira Nabiullina and Deputy Governor Alexei Zabotkin have led us to expect that the CBR will keep the key rate unchanged at 4.25% at this Friday's meeting.