Macroeconomics
With the NBU having maintained a strict monetary policy throughout 1H12, the money supply in the Ukrainian economy is currently uncomfortably tight. Real interest rates are perched near record-high levels and 12-month growth in the monetary base sits at an anemic 4%. The resulting tight liquidity has acted as a barrier to new corporate lending, even as businesses demonstrate a high demand for fixed investment. Coupled with a seasonal history of second-half monetary loosening to finance shortfalls in the government budget, the circumstances strongly suggest that the NBU will embark on a round of “quantitative easing” in the next three months in order to push down interest rates and fill government coffers. As Ukraine remains locked out of international capital markets, QE is the only realistic source of state financing in the short term.
