Ukraine monetary base grows 4.7% m/m in February

Ukraine’s monetary base grew 4.7% m/m in February after a 4.1% m/m decrease in the prior month, the National Bank of Ukraine (NBU) reported on March 14. Money supply grew 4.4% m/m versus a 1.8% m/m drop in the prior month.

Alexander Paraschiy: The main reasons for the monetary base growth are the NBU’s active state bond purchases (UAH 19.3 bln vs. UAH 2.5 bln the prior month) prompted by Naftogaz’s refunding needs (UAH 11.1 bln), as well as increased refinancing of commercial banks (UAH 22.3 bln vs. UAH 8.5 bln a month ago) due to significant deposit outflows (-5.1% m/m in hryvnia and -5.8% m/m in foreign currencies).

Despite the many unpredictable events during the last month, the expansion of monetary aggregates is in line with our expectations. Through the year, the budget revenue shortfall will give little choice to the government but to make the NBU a more active participant in funding fiscal needs. External IMF funding will help somewhat (in addition to the U.S. and EU having already committed macro-support). However, hryvnia printing is likely to remain the key source of covering the budget deficit. Against this backdrop, we are keeping our forecast for this year’s monetary aggregates growth at 15.5% ytd.