7 September 2010
The National Bank of Ukraine bought USD 125 mln net on the local forex market in August, down from a monthly average of USD 1 bln during March-July. We attribute the decline to deterioration in the trade balance because of the lagged effect of a 27% decline in prices for metals exports in May and June and seasonal fluctuations in trade. The 20% metals price increase since that time will contribute to a resumption in metallurgy exports in the coming months, although seasonal volatility in supply/demand on the local forex market this fall is still highly likely. Nonetheless, we do not expect sharp UAH exchange rate movements in the near term due to net currency inflow through BoP and abundant central bank reserves. NBU reserves were up USD 1.8 bln (+5.9%) in August to USD 32.7 bln thanks to receipt of the first USD 1.9 bln tranche from the International Monetary Fund.