IMF predicts reduction in Ukraine's international reserves

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July 7, 2012, 1:01 p.m. | Business — by Interfax-Ukraine

IMF advised Ukraine's NBU that monetary policy should focus more on price stability.

Ukraine's international reserves, which shrank in 2011 from $34.6 billion to $31.8 billion, could fall to $24.4 billion at the end of 2012, the International Monetary Fund (IMF) has said.

According to its estimates released on Saturday, July 7, after the conclusion of the 2012 Article IV Consultation with Ukraine, reserves will fall to 2.6 months of imports of goods and services, compared to 3.6 months at the end of 2011 and 4.2 months of imports at the end of 2010.

The IMF also said that in relation to short-term debt, Ukraine's international reserves this year could fall to 39.6%, from 55.2% in 2011 and 71.5% in 2010.

The fund added that these projections are based on the assumption that lending under the stand-by the program will continue to be frozen.

According to IMF projections, Ukraine’s net international reserves will amount to $13.6 billion at the end of 2012 compared to $17.6 billion at the end of 2011 and $20.3 billion at the end of 2010.

As reported, according to the National Bank of Ukraine, the country’s international reserves in the first half of 2012 shrank by 7.8%, to $29.32 billion, including a reduction of $1.441 billion, or 4.7%, in June 2012.

The IMF said that the NBU's current tight monetary stance aims at addressing external risks and containing inflation. However, this, combined with deleveraging by banks, has constrained credit growth.

"Liquidity tightening as well as prudential and administrative measures have contributed to exchange rate stability," the IMF said.

The IMF Executive Board advised the NBU that monetary policy should focus more on price stability.

"They noted that a tighter monetary stance would be warranted if the balance of payments or inflationary pressures intensify," reads the statement.

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