Gross reserves declined to $23.1 billion in June

UKRAINE - In Brief 06 Jul 2013 by Dmytro Boyarchuk

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Gross foreign reserves declined $1.4 billion (5.7% m/m) in June down to $23.1 billion or 2.55 months of future imports, according to the Central bank report on July 5th.It has been already for the second month in row gross reserves have been falling.  This tendency was the direct consequence of QE3 tapering talks.  Since July 2012 till April 2013 Ukrainian government had been placing Eurobonds every month when large external redemptions were due.  This policy allowed to avoid currency shock in fall 2012 and even allowed to strengthen gross reserves at the start of 2013. But situation has changed drastically in May.  According to insiders the authorities tried to raise some funds from abroad in May but failed.  Also insiders report that Minister of finance personally had meetings with investors trying to find out how serious the problem is.  By the date of this writing there was no progress with attracting external funding. In this respect we anticipate gross reserves to keep decreasing due to further IMF redemptions ($1.3 billion due by August 12) and strengthened devaluation sentiments in September.  What more, in view of problems with Eurobonds placement we see domestic banks to stop purchasing domestic bonds nominated in US dollars.  No doubts, the state banks Oshchadbank and Ukreximbank will try to underpin government with available foreign cash but those two state banks already have large exposure on state securities and without external loans for themselves will be of poor use for balancing forex market. Unfortunately, we can hardly expect IMF deal with Ukraine.  We are already too close to the president elections and committing to the IMF requirements on relaxed...