Ukraine monetary base falls 5.4% m/m in October

Макроэкономика 14.11.2014 Ukraine’s monetary base fell 5.4% m/m in October compared to a 2.9% m/m gain in the prior month, the National Bank of Ukraine (NBU) reported on Nov. 13. Year-to-date, the monetary base has risen 8.3%. The money supply contracted 3.5% m/m in October compared to a 2.2% m/m drop in September. Year-to-date, the money supply has risen 5.5%. The NBU purchased UAH 12.8 bln in state bonds in October, compared to UAH 29.7 bln in the prior month. Alexander Paraschiy: A 23.2% gross international reserves decline in October was the main reason for the sharp monetary base contraction. The same month, the NBU spent at the ForEx USD 3.2 bln for interventions, burning a substantial amount of the hryvnias issued in previous months. In light of the Oct. 30 gas agreement with Russia, which stipulates a USD 3.1 bln redemption in gas debt to Gazprom, we expect the declining trend for the monetary base to continue. Hryvnia printing will likely accelerate to finance the budget deficit. Nevertheless, in view of the inevitable sharp decline in gross reserves (owing to the USD 3.1 bln redemption), we expect monetary base growth through the year to be only slightly above 10% YTD (compared to 19.8% YTD that we estimated previously).