Yesterday, the Ministry of Finance increased interest rates a bit, but rejected three-quarters of low demand.
In total, demand amounted to UAH1.2bn (US$43m) for the auction, but the Ministry accepted only UAH323m (US$11m) at par value, with UAH330m (US$11.7m) for budget proceeds. Only the bids for three-month paper were accepted in full, as competitive demand was at 7%, the same as at the end of August.
For longer maturities, the Ministry decided to reject most of demand. Out of UAH757m (US$26m) in six bids for 12-month paper, the Ministry rejected three bids amounting to UAH610m (US$21m). For the 2.5-year instruments with maturity in February 2023, the Ministry rejected five bids amounting to UAH290m (US$10m) out of 10 bids, which amounted to UAH320m (US$11m), accepting only UAH30m (US$1.1m).
Despite rejecting most of demand for these two instruments, there were some changes in interest rates. For the 12-month bills, the cut-off rate was increased by 21bp to 9.5% and the weighted-average rate rose 18bp to 9.46%. However, for the 2.5-year paper, only the weighted-average rate was changed, up 4bp to 10.5%, the same level as cut-off rate.
These decisions made by the Ministry indicate to the market that the Ministry is ready to increase rates by 20-25bp, but not aggressively with low amount of demand. Next week with debt repayments amounting to UAH11bn (US$0.4bn), including UAH8bn (US$0.3bn) in principal, the Ministry's decision may be different. With large demand there can be a further increase in interest rates, depending on how many basis points have to be added to the previous level to refinance at least half of next week's debt repayments.