Rates Weekly - September 28, 2021. Blue Sky for FX Liquidity

> Ruble liquidity: O/N rates to slide gradually amid liquidity inflow related to budget. Early this week, the O/N interbank rate has risen to 6.80% following a tax-related liquidity outflow. However, over the next five working days there will be an inflow related to the budget, as flows and spending will pick given it is the end of the month. With liquidity gradually flowing in from the budget channel, banks' current accounts at the CBR should climb to around R3.2 trln, or R0.4 trln more than is required for reserves averaging. Against this backdrop, the O/N interbank rate should slide gradually to 6.50% as the end of the current reserves averaging period approaches (October 12).> FX liquidity: Blue sky on the horizon. The O/N basis has recently tightened to almost zero, as high commodity prices have been boosting Russia's current account, while corporates and banks have begun actively placing Eurobonds, both of which have contributed to FX liquidity inflows. We expect the current account to remain very strong. Moreover, $7 bln of spending per year from the NWF has been penciled in for 2022-24, which will result in lower FX purchases under the fiscal rule. This will also boost FX liquidity. Against this backdrop, there is a good chance that FX liquidity could climb to $60 bln over the next several years, or around 20% of Russian banks' FX assets - levels last seen before the 2014 FX crisis. We therefore recommend paying 10y USD/RUB basis swap at the current -150 bps, targeting -100 bps, where it mostly traded before the 2014 FX crisis.