The Ministry of Finance seems to have decided to suspend the increase in interest rates on local-currency bills. Yesterday, to keep interest rates unchanged, most demand was rejected.
For 11-month paper, demand was half what it was compared with last week. Half of the bids, by number and by amount, came in with rates above the cut-off level set a week ago. The Ministry decided to keep cut-off rate unchanged at 10.3% and increase the weighted-average rate by 8bp to the same level, 10.3%.
The other bill offered yesterday had a 3.5-year maturity. This issue was last offered in February of this year, prior to the COVID-19 lockdown. Therefore, the best comparable for yesterday's offering was the three-year paper sold two weeks ago. Bidders requested a premium for the additional six months to maturity, and submitted bids with rates ranging between 11.4% and 12.5%. The Ministry did not accept any of them, as rates were 45-155bp above the cut-off rate for the three-year paper. All six bids amounting to UAH153m (US$5.4m) were rejected.
As a result, budget proceeds in local currency fell x14 to just UAH396m (US$14m). Since this decision was deliberate, it indicates that the Ministry wants to halt the rise in interest rates, at least for the present. We don't know how long the Ministry will maintain this stance, but a material increase in the amount of demand could force the MoF's hand to renew the increase in interest rates.