NBU reserves inch 1.9% lower in December

The National Bank of Ukraine’s gross international reserves declined 1.9% mom (-8.0% yoy) to USD 31.8 bln in December, the NBU reported on Friday.

Vitaliy Vavryshchuk: We believe the December’s decline was solely due to currency revaluation (500-600 mln) as EUR and GBP weakened vs. the US dollar last month. Also, NBU reserves were negatively affected by the government’s redemption of a USD 600 mln Eurobond (government FX accounts are treated as a part of NBU reserves), but that outflow was to a large extent offset by USD 413 mln in proceeds from the sale of local USD-denominated government bonds (introduced in mid-December). The December reserves data are broadly positive as they imply the NBU probably became a net FX buyer last month (net purchases were USD 200 mln as of Dec. 29, according to an NBU official) and the FX market remained broadly balanced. This is in sharp contrast to the previous months – the central bank’s net FX sales amounted to a worrying USD 2.0 bln in September, USD 1.5 bln in October and USD 0.7 bln in November. We think the sharp improvement in December was seasonal and came on the back of lower net FX cash purchases by the population; BoP data at end-January will shed more clarity on the issue. We expect the NBU to continue supporting the UAH/USD rate through 2012 by selling its reserves and think the chances of keeping the exchange rate broadly stable are high, providing no new major depreciation triggers emerge.