Macroeconomics
With Ukraine’s headline inflation now at a 9-year low of 1.9%, real interest rates have reached historically high levels of 8% to 10%, driving a sharp increase in UAH denominated bank deposits. We expect the volume of bank loans to increase by 24% YoY in FY12, financed mostly by the growth in hryvnia retail deposits. Strong retail sales, rising real incomes, and “quantitative easing” via purchases of domestic government bonds by the NBU are all factors which should support banking sector activity as well as overall economic expansion during the remainder of 2012. We leave our forecast for FY12 GDP growth unchanged at 4.8%, as rising domestic consumption and strong machinery exports should offset the 1H12 slowdown in global demand for Ukrainian steel.
