Page 46 - bne IntelliNews Country Report: Ukraine Dec17

PrivatBank , won another legal battle against the bail-in of their funds, local media reported on November 8. Earlier this month, the Appellate Administrative Court of Kyiv rejected an attempted appeal of May's ruling of a lower court that obliged the bank to restore the lost deposits of the family members. In May, the National Bank of Ukraine (NBU) said it was "outraged" by a court ruling that nationalised PrivatBank should return of bailed-in funds owned by Surkis family. The funds were deposited at PrivatBank by members of the Surkis family, whom the NBU recognised as related parties of the bank, owned before its nationalisation by oligarchs Ihor Kolomoisky and Hennady Bogolyubov. Earlier, the court also ruled to charge PrivatBank UAH360mn (€12mn) of deposits of A-Bank controlled by the Surkis family. The court considered the recognition of A-Bank as a related party of PrivatBank unlawful.
8.2 Central Bank policy rate
The NBU raised its discount rate by 100bp to 13.5% p.a. (still -50bp YTD) at the end of October, citing the need to tame inflation expectations and bring headline inflation back to targeted trajectory.
The monetary tightening move was also a reaction to the ongoing delay in IMF financing and recovering household consumption. The central bank expects the next IMF tranche of $2bn to be disbursed in 1Q18 and projects another disbursement of $1.5bn by the end of 2018.
The NBU worsened its end-2017consumer inflation forecast to 12.2% y/y from 9.1% before , outside of its target range of 8%+/-2.0pp, and increased the end-2018 projection to 7.3% y/y from 6.0%, thus expecting inflation to return to that year’s target range of 6%+/-2pp thanks to tighter monetary policy, a lack of supply-side shocks, which have fueled prices in 2017, as well as moderate F/X volatility. The Bank left its end-2019 inflation forecast unchanged at 5.0% y/y (vs. 5%+/-1.0pp target).
The Bank also revised its other macroeconomic forecasts , upgrading 2017E real GDP growth by 0.6pp to 2.2% y/y but maintaining its 2018 and 2019 growth projections at 3.2% and 3.5%, respectively. Factoring in the delay to IMF financing, the NBU cut its end-2017 F/X reserves forecast to $18.6bn (in line with the current level), from $20bn expected before, and downgraded its end-2018 projection to $22.2bn from $27bn. These forecasts envision sovereign Eurobond placements of $1.5bn in each of 2018 and 2019.
Acting NBU Governor Yakiv Smoliy said further monetary tightening was possible in case supply-side factors remained strong, household consumption continued to recover faster than expected, fueled by increased welfare standards, and IMF financing was further delayed. At the same time, the NBU may start easing monetary policy in 2H18 if inflation returns within the target range, cooperation with the IMF continues, and fiscal policy remains prudent. (NBU)
The discount rate hike came as a surprise , as a majority of analysts had expected an unchanged rate. The overall tone of the NBU statement was hawkish, though this may partially reflect the Bank’s intention to tame inflation expectations through communication channels.
The NBU expects its rate hike to help curb inflation by feeding into bank
46 UKRAINE Country Report December 2017 www.intellinews.com