8 December 2011
The National Bank of Ukraine’s gross international reserves declined 5.1% mom to USD 32.4 bln, the central bank reported yesterday. We estimate USD 0.4 bln of the total was due to currency revaluation while the remainder likely came from interventions on the interbank FX market and direct FX sales to Naftogaz (NAFTO). Vitaliy Vavryshchuk: The sizable decline in reserves is a negative surprise – all comments from the NBU in the last month have pointed to a moderation in FX demand on the local market and positive net capital inflows. While further clarifications from the NBU should shed more light on issue, we think the decline is due entities (such as Naftogaz) purchasing currency directly from the NBU. We expect the fall in reserves to also be substantial (~USD 1.0 bln) in December and decelerate in subsequent months. The C/A should improve on the upsurge in agricultural produce exports while FX outflows to the cash market are set to further slow due to the NBU’s tightening of administrative controls.