Ukraine gross reserves decline 1% in June

Ukraine’s gross international reserves declined 1.1%
m/m, or USD 192 mln, to USD 18.0 bln in June, the National Bank of Ukraine
(NBU) reported on July 5. The losses were due to FCY-denominated debt repayments
that exceeded receipts from a local Eurobond placement and net currency
purchases by the central bank on the ForEx.

In May, debt repayments in foreign currency totaled
USD 724.4 mln (in the equivalent). In particular, repayments of FCY-denominated
state debt and debt servicing totaled USD 562.4 mln, including repayments on
local Eurobonds of USD 552.5 mln. June payment on debt to the IMF was USD 162
mln (in the equivalent).

The placement of local Eurobonds for USD 539.4 mln (in
the equivalent) was the major source of reserves replenishment in June.
Meanwhile, NBU net currency purchases on the ForEx was only USD 24 mln (vs. USD
181 mln in May). The central bank emphasized that higher volumes of currency
purchases in June could result in increasing pressure on the exchange rate amid
some deterioration of prices on the external markets and reduced interest of
international investors in emerging markets. That said, the NBU even renewed
the purchase of currency on the ForEx for the first time since January.

The NBU also reported on a securities revaluation of
USD 38.2 mln (adjusted to market value and the currency exchange rate), which
apparently also had a negative effect on reserves.

As of July 1, Ukraine’s gross international reserves
cover 3.2 months of imports, which is sufficient to stay current on the
external payments of the government and the NBU.

Evgeniya Akhtyrko: We anticipated the difficulties
with maintaining Ukraine’s gross international reserves in June. However, we
expected higher currency purchases by the NBU on the ForEx during June. So far,
the NBU is refraining from sacrificing the stability of the national currency
for the sake of maintaining gross international reserves.

There is a chance that the NBU might replenish its
gross international reserves in July as only repayments on local Eurobonds of
USD 230 mln are scheduled for this month. Currency receipts from MinFin’s local
Eurobond placements should be the major source of a reserves build-up in July.
The NBU’s currency purchase on the ForEx is likely to be scarce again as the
seasonal revaluation of the national currency seems to be over. That said, we
expect gross international reserves to increase USD 200-300 mln in July.