Ukraine monetary base rises 20.3% YTD in 2013 on budget support

Макроэкономика 16.01.2014 Ukraine’s monetary base increased 20.3% YTD in 2013, get a 6.5% m/m boost in December, Olena Shcherbakova, head of monetary policy department at National Bank of Ukraine (NBU), commented on Jan. 15. The money supply grew 17.2% YTD, aided by a 2.9% m/m increase in December. Alexander Paraschiy: The 2013 monetary base increase exceeded even the bravest projections (we expected 14.0% ytd). With fiscal accounts in poor condition, the NBU supported the budget through a variety of channels, serving as the main source of money formation in 2013. We anticipated accelerated hryvnia printing closer to New Year’s Day and it indeed proved to be a safe period for extra liquidity injections; still a 6.5% m/m monetary base increase in December as high as was surprising. Most likely, the authorities – motivated by a USD 15 bln loan commitment from Russia – decided to take a bigger risk in December and print more hryvnia than average for 11M13. We observed a very similar situation in the prior year. The NBU had been running an extremely tight monetary policy throughout the year due to high devaluation expectations. However, in the year’s last month the authorities generated a 7.0% m/m increase in the monetary base, accounting for the year’s aggregate money growth. We believed it was a one-time trick that won’t be repeated. We expect few changes in monetary policy over the next 12 months and the NBU will be the main source of balancing fiscal accounts. However, we also believe the fiscal gap will be funded from the Russian loan, of which USD 12 bln remains for this year. Against this backdrop, we project a 15.5% YTD monetary base growth in 2014.