Ukraine monetary base increases 1.3% m/m in October

Ukraine’s monetary base growth sped up 1.3% m/m (12.9% YTD) in October from 0.3% m/m a month ago, according to National Bank of Ukraine (NBU) data released on November 13. At the same time, money supply (M3) remained flat m/m (12.8% YTD). NBU state bond purchases fell to UAH 0.9 bln in October from UAH 3.0 bln a month before. Sterilizing operations through purchases of deposit certificates remained high at UAH 53.4 bln in October, or slightly less than the prior month (UAH 60.9 bln).

Alexander Paraschiy: A faster monetary base increase (12.9% YTD) vs. money supply growth (12.8% YTD) looks like evidence of hryvnia emissions. Theoretically, after a 4.7% m/m (USD 1.0 bln) gross reserves decline in October, we should have observed at least a modest monetary base expansion (if not decline). But we see that the tendency is the opposite. What’s more, the NBU reported negligible state bond purchases through the month and impressive sterilizing operations (UAH 53.4 bln).

In other words, the main source of money creation is beyond the scope of traditional indicators. Against this backdrop, we estimate direct wires from the NBU to the budget and reduced cash residuals in the State Treasury’s accounts were the main reasons for October’s monetary base increase. Given that we see poor chances for external borrowings at this point, while hryvnia emissions are being used as the only source to cover state liabilities, we have to revise our monetary base forecast up to 14.5% yoy for 2013 from 13.2% yoy.