Ukraine monetary base falls 1.3% m/m in March

Ukraine’s monetary base fell 1.3% m/m (-6.5% YTD) from 0.1% m/m growth in February, the National Bank of Ukraine (NBU) reported on April 11. In contrast, money supply increased 1.3% m/m (-2.6% YTD) compared to a 0.6% m/m decline in the prior month.

Alexander Paraschiy: Ongoing sluggish public spending (Treasury residuals remain high at UAH 32.8 bln, or 1.4% of GDP by the end of March) and the NBU’s modest purchase of state bonds are the main reasons for this tendency. It’s not sustainable as the Finance Ministry will not keep Treasury residuals high for long while we expect the NBU will become more active in accumulating state bonds in its portfolio. 

In particular, the IMF memorandum includes almost UAH 100 bln target for 2017 state bond issues in order to provide for banks recapitalization and Deposit Guarantee Fund financing. We believe such a volume of new state securities can be monetized only at the expense of hryvnia printing. Against this backdrop, our 2017 monetary base forecast of 8.6% YTD growth remains realistic.