NBU gross international reserves contracted 4.6% m/m to US$ 25.3bn in January. Despite a considerable drop in FX interbank trading volumes (down 46% m/m to US$ 8.4bn) the currency gap rose, forcing the NBU to intervene heavily and sell net of US$ 1.1bn on the interbank market last month (vs. net purchases of US$ 0.1bn in Dec.). Naftogaz’s payments for December gas imports (US$ 892mn) were the largest source of currency demand last month. Additionally, net household currency purchases stood at US$ 834mn in January (down from US$ 921mn in December), a consequence of recurring expectations of hryvnia depreciation.

BG Capital: We expect the NBU will continue selling hard currency from reserves to support the hryvnia FX rate, but the size of interventions is set to diminish in the coming months. Post-election relief should bring more stability to the FX market, likely easing the cash segment’s misbalances. Diminishing debt capital outflows, coupled with a tiny C/A gap, will also support FX market stabilization. Additionally, we expect the IMF will start the third review of Ukraine’s economic performance after the end of the electoral cycle, meaning NBU reserves may be further replenished with new IMF loan tranches for a total US$ 4.2bn this year.