Over the first Ten Months of 2016, the Money Supply Has Expanded, Driven by Hryvnia Deposit Growth
The money supply has expanded by 6.1% year-to-date to UAH 1054.5 billion, driven by an increase in hryvnia deposits, according to preliminary data for October 2016 .
Over the first ten months of 2016, the stock of hryvnia deposits has increased by 4.6%. The deposit growth was primarily attributed to improvements in inflation expectations, which declined by 4.6 percentage points in October compared to December 2015. In Q3 2016, heightened FX market volatility observed in August caused a relatively sustained upward trend in domestic currency deposits to halt, triggering the conversion of hryvnia into foreign exchange cash. However, as the situation in the FX market stabilized with inflation expectations improving further, the stock of hryvnia deposits have resumed growth since mid-September, with the growth rate accelerating to 2.2% m-o-m in October.
Lending activity was restrained by high credit risks and heavy debt burdens of borrowers. Over the first ten months of 2016, loans in domestic currency rose by 11.2%, primarily fueled by an increase in corporate loans in domestic currency (by 14.7% year-to-date, including by 6.2% m-o-m in October). Lower interest rates, a need for debt restructuring, and borrowers’ needs for working capital have contributed to stronger demand for loans from the corporate sector.
At the same time, loans to households continued to shrink. In October, loans in domestic currency declined by 4.5% year-to-date and to 1.2% m-o-m.
Thanks to a gradual easing of monetary policy by the NBU borrowing costs in domestic currency in the interbank market declined to 15.0% (versus 19.3% in December 2015).