C/A deficit fully covered with capital in 4M12

Ukraine’s current account deficit stood at USD 1.8 bln in 4M12, virtually unchanged from 4M11, according to NBU data released yesterday. While the merchandise trade shortfall widened USD 0.4 bln yoy to USD 4.2 bln in 4M12, stronger income balance (USD 0.1 bln in 4M12 vs. negative USD 0.7 bln in 4M11) more than offset this increase. Financial account inflows remain strong, reaching USD 1.1 bln in April alone and taking the 4M12 figure to USD 1.7 bln, just enough to cover the C/A gap. Notably, debt capital inflow into the non-financial sector remained strong at USD 0.4 bln in April (USD 2.0 bln in 4M12) while the financial sector also saw positive net inflows of USD 0.2 bln for the first time since March 2011 (net inflow in 4M12 was negative at USD 1.0 bln). FX outflows from the banking sector into the cash segment subsided to just USD 0.4 bln, the lowest since mid-2010.

Vitaliy Vavryshchuk: The 4M12 data was broadly positive and in line with what we expected. We maintain our projection that Ukraine will see an external financing gap (combined balance of C/A and financial account) of around USD 6.1 bln (3.2% of 2012E GDP), which will be covered by NBU reserves. We think the NBU remains committed to alleviating major imbalances in the interbank market and has sufficient resources to keep the hryvnya broadly flat vs. the U.S. dollar through end-2012.