Ukraine monetary base inches up 0.8% in 2015

Ukraine’s monetary base inched up 0.8% during 2015 (+4.6% m/m in December), the National Bank of Ukraine (NBU) reported on Jan. 15.  Ukraine’s money supply rose 3.4% during 2015 (+1.9% m/m in December). In 2015, the NBU purchased UAH 93.7 bln in state bonds (including UAH 19.1 bln in December).

Alexander Paraschiy: Monetary base growth in 2015 was far lower than the 6.1% growth that we expected, owing to cautious budget spending through the year. In particular, as of Dec. 1, Treasury account accumulations were UAH 48.0 bln (though they dropped to UAH 9.0 bln at the end of December). That decreased needs of hryvnia printing and lending that would have driven the monetary base higher. 

For 2016, we anticipate monetary policy to change somewhat. No official monetary policy principles for 2016 have been announced by the government but we expect the NBU will try to practice monetary aggregates targeting as a first step towards inflation targeting. In essence, Ukraine is in a good position to start such a policy. The narrowed budget deficit (down to 3.7% of GDP), as well as the strong cut in quasi-fiscal spending (down to UAH 16 bln compared to UAH 107.8 bln in 2015), is a good precondition to limit the fiscal policy impact on monetary aggregates.  Against this backdrop, we would anticipate the growth rates of monetary aggregates to normalize, with the monetary base increasing 15.1% YTD in 2016.