Ukraine gross foreign reserves increase 1.7% m/m in September

Макроэкономика 08.10.2014 The gross international reserves of Ukraine’s central bank increased by USD 272 mln to USD 16.2 bln in September, 2.3 months of future imports, according to a National Bank of Ukraine (NBU) report published on Oct. 7. A USD 1.4 bln IMF tranche, as well as a 0.5 bln loan from the World Bank, were the key sources of the gross reserves increase. At the same time, interventions on the ForEx (the NBU sold USD 834 mln) coupled with external redemptions (USD 193 mln to the IMF) dampened the gross reserves growth. Alexander Paraschiy: The very slim gross reserves increase despite USD 1.9 bln in external support delivered during the month is very disappointing. These results would not have been surprising if they included a USD 1.6 bln Naftogaz Eurobonds redemption, but it was delayed till early October. Given that the NBU keeps pouring more foreign cash into the market through auctions amid no signs of stabilization at the ForEx, we might see a very strong (over USD 2 bln) gross reserves contraction in October. Against this backdrop, we anticipate the authorities will hastily push forward with a USD 1 bln U.S. government-guaranteed Eurobonds placement. Also, we anticipate diligence in compliance with IMF requests, such as limiting fiscal gaps. With the ForEx interventions much stronger than we anticipated, we are revising down our gross foreign reserves estimate to USD 16.5 bln (2.4 month of imports) for 2014 from USD 18.5 bln estimated previously.