Liquidity under tax pressure

Обзор облигаций 31.07.2015 Month-end tax payments caused liquidity to decline significantly yesterday. Banks' correspondent accounts with the NBU fell UAH1.22bn to UAH20.54bn even though total CDs outstanding declined UAH1.85bn to UAH47.08bn. Although total local currency debt repayments decreased UAH1.33bn to UAH6.36bn, these funds should be mostly received by the NBU and have no impact on banks' correspondent accounts. At the same time, broader liquidity fell UAH4.41bn to UAH73.97bn. Investment implications: Month-end tax payments usually cause liquidity to decline at the end of month, with most of the outflows occurring during the last two days. While the NBU covered some outflows on Tuesday to hold liquidity steady with only a slight decline, there was no source of funds on Wednesday. The same situation could have occurred yesterday, causing liquidity to decline further today.