“Guess NBU rate” game

During last days, the Ukrainian FX market continued to be guided by the NBU. National Bank of Ukraine changed its behavior and begun to enter the market at the end of the day instead of the morning. Thus, market players are now playing the game “let’s guess what the NBU’s intervention rate for today will be”, experts of Astrum Investment Management say.

They maintain their view that the NBU will not go far with its exchange rate adjustments, as it continues to pursue its de facto fixed exchange rate policy.

At the same time, the NBU will need to show some degree of “fluctuations” to the IMF, as the Fund does not favor a fixed rate policy. Thus, further “cosmetic” exchange rate adjustments are possible. During the last week, the hryvnia gained less than 0.2% against the dollar.

Ukraine's currency reserves decrease

National Bank's currency reserves decreased by 4,6% or by $1,219 bn to the level of $25,286 bn due to the decrease in currency volume held by the NBU. According to the NBU's data its position as of now consists of the foreign currency for $24.273 bn, gold reserves for $949,19 mln., special borrowing rights - $0,063 bn and reserve position in IMF - $0,3 mln.

In 2009 international reserves of the regulator decreased by16% or by $5.038 bn.

Business expectations turn to positive

Research by National bank of Ukraine indicated that expectations of top management of Ukrainian enterprises had shifted to modest positive zone in 4th quarter of 2009. In detail, 10% of business entities expect sales to rise in next 12 months, compared to 8% in 2nd and 3rd quarter of 2009. Also, the share of those who expect sales to go down narrowed to 24%.

For the year 2010, business sector expects inflation at the level of 15.1%. It is an optimistic estimate, considering rising gas prices and tariffs for heating etc. Also almost 60% expect devaluation of grivna in this year.

Experts outline that the balance of general expectations about the economic and financial state of companies in the next 12 months turned from a negative 2% in 3Q09 to positive 6.6% in 4Q09, becoming positive for the first time since the crisis entered its harsh stage in 4Q08.

The NBU has published its survey of business expectations in 4Q09. The survey is based on interviews with 1,245 companies across Ukraine, and provides a good representation of the Ukrainian business community.

IMF to pay wages and pensions?

Kommersant Ukraine newspaper sources tells that although IMF will not issue next tranche to Ukraine prior to presidential elections there might a compromise of another nature with Ukrainian authorities. The money that IMF has already transferend to National Bank of Ukraine may be transfered to the government to finance the budget deficit. The last tranche from IMF in that way will be redistributed to pay for wages of state employees as well as other social payments from the budget instead of being used for support of the financial sector.

National's Bank dilemma

National Bank of Ukraine (NBU) is currently facing a dilemma: help real sector get loans but endanger stability of the banking system, or stabilize the banking system but let the real sector's credit lines run dry. Bad credit in the economy currently is evaluated at around 30-40% of outstanding credit portfolio. Letting the banks credit the enterprises means letting the banks somewhat loose. Making the banks deal prudently with bad credit means cutting credit in the economy and letting real sector suffer without credit. UR sources say that the price of all bad debt portfolio in Ukraine as of now might be worth about USD 30 m - not a very promising figure.

National Bank will evaluate banks early January 2010

 

Martin Reiser, World Bank (WB) director for Ukraine, Belarus and Moldova, said that National Bank of Ukraine (NBU) will conduct new diagnostic evaluation of Ukrainian banks in the first weeks of 2010. Such an evaluation will be used by WB for the decision on aid for rehabilitation of Ukraine's banking sector. First such evaluation was conducted in early 2009.

WB reps think that the worst scenario for Ukraine's banking sector was averted. Now the banks should work more on transparency of their ownership and protection of their clients.

Another point of critique is the policy of management of Ukraine's state banks. Oschadbank is said to be in a risky position due to issuing loans to Naftogaz, Ukraine's oil and gaz state holding. WB reps think that institution like Oshadbank should be restructured or liquidated. Interfax.

National Bank's independence criticised by Minister of Economy

Danylyshyn, Minister of Economy, criticized independence of National Bank of Ukraine (NBU) in his address "Government and National Bank: searching for common strategy". He noticed that the NBU should become closer to executive branch instead of undermining its economic policy. He said that government runs a budget deficit and instead of helping the gov't NBU undermines its policy by treating the deficit and the main inflationary cause...NBU's top management got criticized for shady distribution of refinancing funds, selling currency to selected buyers at lower rates, rumored participation in currency exchange speculations.

Among other things Minister suggested that the Head of NBU is nominated by the government. Current Head of the NBU Stelmakh retires on December 15, 2009. In case Yuliya Tymoshenko wins the presidency she will propose her own nominee to occupy this post.