The National Bank of Ukraine (NBU) on Thursday, for the fourth time since the beginning of the war, bought government war bonds. This time for UAH 10 billion while earlier the purchases were valued at UAH 20 billion, bringing its portfolio of these securities to UAH 70 billion, follows from a report on its website.
According to the report, this is the third buyout since the beginning of April, the total amount this month has reached UAH 50 billion.
As reported, the total volume of issuance of war bonds is up to UAH 400 billion.
At market auctions since March 1, their sales amounted to UAH 38.07 billion, $93.8 million and EUR 176.5 million.
Finance Minister Serhiy Marchenko previously predicted a state budget deficit of $5-7 billion a month for April-May, compared with $2.7 billion in March.
In early April, the National Bank of Ukraine (NBU) applied to the Cabinet of Ministers with the next developments in order to increase business lending: to expand the portfolio guarantee program for large agricultural enterprises and large enterprises from strategic industries, as well as to increase the term of lending to farmers for the sowing season from six months to a year.
“And if businesses have additional proposals, we urge them to share them with the European Business Association (EBA), we will transfer them to the National Bank,” the EBA said on its website following a meeting with the National Bank this week, which was also attended by the American Chamber of Commerce.
As one of the meeting participants specified to the Interfax-Ukraine agency, among other NBU proposals to the government are the expansion of state support for credit lines, financial leasing, avalized bills, as well as an increase in portfolio guarantees from 80% to 100% of the amount of loans for “red” zones, where the fighting is taking place.
The NBU leadership also said at the meeting that the plans of banks for the second quarter include lending to Ukrainian enterprises for almost UAH 66 billion, including UAH 30 billion for the agricultural industry in the near future, of which UAH 5.8 billion has already been allocated.
The National Bank clarified that since the beginning of the war, the four largest banks have shown an increase in their loan portfolio by UAH 12.5 billion.
According to Interfax-Ukraine, the government has previously criticized the banking system for its unwillingness to take on lending risks, especially in the “red” zones, and proposes to solve this problem in state-owned banks by setting special kpi. In addition, the Ministry of Economy is discussing the idea of appointing a special deputy minister who would oversee this issue, and appointing the former head of the board of Ukreximbank Yevgeny Metsger to this position.
At a scheduled meeting of the Monetary Policy Committee (MPC), the National Bank of Ukraine (NBU) once again decided to keep the key policy rate at 10%, given the ongoing war in the country unleashed by Russia.
“Under the current conditions, the impact of the key policy rate on the functioning of the money market and the FX market remains limited. With this in mind, the key policy rate will stay flat at 10% until monetary transmission channels are effective again,” the NBU said on its website on Thursday.
As reported, in early March, the National Bank, in the face of Russia’s large-scale armed aggression, kept the refinancing rate at 10% per annum, postponing the decision to revise it until the economic situation normalizes.
The National Bank of Ukraine (NBU) will soon consider some relaxations regarding foreign exchange operations, said the head of the National Bank of Ukraine (NBU) Kyrylo Shevchenko.
“I think that in the near future we will consider some concessions regarding foreign exchange transactions. In principle, we are already doing them,” he said in an interview with Economic Truth.
The head of the NBU added that today the difference between the official rate and the rate on the black market has begun to narrow quite significantly compared to what it was at the beginning of the war.
“If at the beginning of the war we saw in exchangers that the exchange rate fluctuated around UAH 40/$, today the average cash market rate is 31.63-32.05 UAH/$. This is not a very wide spread and this makes us happy”, he pointed out.
As reported, on February 24, the National Bank suspended the work of the foreign exchange market of Ukraine, except for the sale of foreign currency, and fixed the rate at the level of February 24.
Dynamics of changes in discount rate of NBU
NBU
The Board of the National Bank of Ukraine (NBU) on 8 March 2022 decided to purchase war bonds for the amount of UAH 20 billion due to the need to finance the Armed Forces of Ukraine and for the duration of martial law.
“At the same time, the NBU will only provide limited financing for the critical expenses of the government. This will allow to minimize the risks of high inflation and disrupting macrofinancial stability and will facilitate quick return to market-driven operation of economy and financial markets after the war,” the central bank said on Tuesday.
This amount paid for war bonds constitutes approximately 1.3% of the total amount of Ukraine’s state budget expenditures for 2022.
The NBU said that the NBU is not a solo or even main sponsor of the government expenses.
“Despite the war, Ukrainian enterprises pay their taxes and large amounts are donated by people to support the Army. Our international partners also provide massive military, financial and humanitarian assistance,” the regulator said.
The central bank said that the NBU will take a separate decision if the further financing of critical expenses is required. It will take into account the military situation, social and economic standing of Ukraine, situation in financial markets and public finances, as well as other sources of budget financing.
“Lending to the government is a temporary measure taken by the NBU due to martial law. After the war is over and the economy is back to operating on market-driven principles, the NBU will return to its standard inflation-targeting regime with a floating exchange rate and will be reinstated the ban of financing the government,” the National Bank said.
The regulator said that the Verkhovna Rada of Ukraine has amended the laws in order to allow these transactions between the NBU and government. Namely, it has decided temporarily for the duration of martial law to waive Article 54 of the Law of Ukraine on the National Bank of Ukraine that prohibits the NBU from granting loans to the state.
