Monetary base increases 3.0% mom in April

The National Bank of Ukraine (NBU) reported on May 16 that its monetary base grew 3.0% m/m in April (+10.3% from the year’s start). Monetary base slowed down somewhat after a 6.9% gain m/m in March. The money supply inched up only 0.6% m/m (+4.6% YTD) after a 1.0% m/m increase a month ago.

Alexander Paraschiy:  Active support by the NBU to the budget remains the key factor of very fast monetary base expansion.  In particular, in 1Q14, net claims on the government (i.e. NBU funding to the budget) was the only reason for a 7.1% YTD monetary base growth while all other traditional factors only mitigated the growth with negative contributions. Though April monetary base details have not yet been revealed, we believe the general picture has not changed: advance profit wires from the NBU to the budget (near UAH 20 bln by April have been transferred to the budget, according to prime minister Arseniy Yatsenyuk) and further active state bonds’ purchases by the NBU (UAH 4.9 bln in April and UAH 31.2 bln for the first four months) are seen as being responsible for fast monetary base growth.

In fact, starting in May, we should see a considerable slowdown of monetary base growth rates.  Firstly, according to the IMF memorandum, advance NBU profit transfers to the state budget are forbidden from May 1st.  Secondly, after substantial support from the IMF (USD 3.2 bln), EU (more than EUR 1 bln over the upcoming months) and a USD 1 bln Eurobonds placement, the budget should not be in desperate need of funds.  What’s more, according to monetary policy principles the NBU is committed to keeping monetary base growth below 21% YTD in 2014 which means that starting in May, the average monthly monetary base growth rates should not exceed 1% m/m.  Against this backdrop we are keeping our monetary base projection at 19.8% YTD for 2014.