NBU reserves increase USD 0.2 bln in March

The National Bank of Ukraine purchased net USD 152 mln in March from the interbank market and NBU reserves were up USD 0.2 bln (0.6% mom) to USD 31.2 bln last month, according to an advisor to the NBU governor. The aforementioned figures imply NBU reserves were down about 1.9% (USD 0.6 bln) in 1Q12.

Svetlana Rekrut: In addition to net USD 0.15 bln in purchases from the market, NBU reserves were supported by USD 0.5 bln in foreign currency inflow thanks to the placement of local FX-denominated bonds by the government (government FX holdings are technically treated as NBU reserves). This implies the central bank likely sold USD 0.5 bln to Naftogaz (NAFTO) to support its payment for February’s gas bill, which totaled USD 1.3 bln. The increase in the NBU reserves last month is definitely a positive sign, suggesting Ukraine managed to keep its C/A deficit fully covered with capital inflows, leaving the domestic FX market broadly balanced. There is a risk the NBU might see a more sizable decline in reserves in 2Q12 due to USD 0.6 bln repayment in IMF debt and the redemption of USD 0.5 bln in Eurobonds (we believe a USD 2.0 bln loan from VTB maturing in June is likely to be refinanced). However, we think the NBU has still good chances of keeping reserves flat in 2Q12, should the government manage to raise USD 1.5 bln via Eurobonds as planned.