Rates Weekly - September 21, 2021. Finance Ministry Returns to Volume Limits at OFZ Auctions

> Ruble liquidity: O/N rates set to stay high amid tax payments. Today, the CBR conducted a R0.5 trln weekly deposit auction, which was R0.2 trln less than last week. This week should also see some budget spending, so banks' current accounts with the CBR should climb toward the R4 trln mark late this week, R1 trln above the required level. Nevertheless, we do not expect meaningful downward pressure on O/N rates, as next Monday should see R1 trln in budget liquidity outflows, mainly related to taxes, which should balance the liquidity situation. We therefore expect O/N interbank rates to remain fairly elevated at around 6.7%. Meanwhile, a narrowing liquidity surplus on the back of growing cash in circulation, which intensified in September, is providing a fundamental reason for higher O/N rates. > OFZs and rates: Finance Ministry returns to volume limits at OFZ auctions. At tomorrow's weekly OFZ auctions, the Finance Ministry has taken a conservative approach and will offer a single issue, the 4y OFZ 25085 (September 2025) with a limit of R15 bln. The issue has not been offered before. The choice of a single issue at the short end of the curve is not obvious. On the one hand, for the first time in a long time the short-dated segment recorded a nonresident inflow. The likely trigger was the rhetoric at the last CBR meeting and expectations of an imminent wrapping up of the rate hike cycle. However, on the other hand, there is the question of how stable the recently reported inflation slowdown is. Overall, we think that demand at tomorrow's auction is likely to be low.