NBU Reserves Increase by USD 975mn After Eurobond Placement

December 10, 2018

Ukraine’s foreign currency reserves increased by USD 975mn (+5.8%) to USD 17.71bn in November, the National Bank of Ukraine said on Dec 5. Despite the November increase, the reserves are still down by 6% year-to-date. The NBU said November’s rise occurred thanks to government receipts worth USD 2.00bn from a Eurobond placement and USD 83mn from the placement of domestic USD-denominated bonds. NBU interventions on the interbank market also made a contribution, with the central bank’s net forex purchases totaling USD 233mn. In terms of outflows, MinFin and the NBU transferred USD 775mn for an early redemption of Eurobonds that were privately placed back in August. The NBU also made a USD 439mn redemption to the IMF and provided foreign currency in amount of USD 238mn to the government for servicing USD and EUR-denominated domestic borrowings. The October change in the reserves had been a gain of USD 99mn (0.6%) to USD 16.74bn.

The latest report indicates that Ukraine’s currency reserves now roughly cover the equivalent of 3 months of merchandise imports, which is widely viewed as the minimum safe level to maintain trouble-free foreign trade. Although the NBU reserves are clearly not going to finish 2018 anywhere near the government’s initial USD 22bn target, a modest further rise is likely in December. NBU Governor Yakiv Smoliy said he expects to receive a USD 1.4bn installment from the IMF this month, implying that the reserves could end the year at USD 19.2bn.   
Importantly, Ukraine’s foreign currency market settled back down last week after the military incident in the Kerch Strait on Nov 25 sparked a panic demand for hard currencies. The hryvnia’s interbank exchange rate moved back below the 28 UAH/USD line, closing at 27.80 UAH/USD on Friday (Dec 7), and we note that December has historically been a rather good month for the domestic currency thanks to holiday spending. For 2019, assuming a relatively un-intrusive political environment and renewed IMF cooperation, we forecast an average exchange rate of 28.80 UAH/USD with the rate at the end of next year at 29.50.

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