The Ministry of Finance continues with successful domestic borrowings. The debut auction this month provided the budget with UAH10bn of new proceeds. Admittedly, only for three months, but without changes in interest rates.
Yesterday, the Ministry offered only one issue of three-month UAH-denominated bills, the same paper it sold a week ago. A large debt repayment of UAH7.1bn is scheduled for today; UAH6bn of it is debt redemption. Demand could be large, but interest rates were unknown.
Most of yesterday's demand was in the range of last week between 11% and 11.3%. Therefore the MoF rejected just 2% of demand or UAH233.5m of bids at par value. However, the maximum level of rates within demand rose to 16%, while in accepted demand, rates also rose slightly.
Within the accepted bids, a larger part of demand had rates at or close to 11.3%, causing the weighted-average rate to rise 2bp to 11.25%. This week, the NBU will hold a new liquidity tender for banks offering three-month and five-year loans. Last week's similar tender went well. This Friday, banks can use part of recently purchased bills for this tender. This liquidity is a good source for budget financing and gives the banks an opportunity to improve profitability.
Although the budget successfully refinanced the key debt repayments this month, they were moved to August so only solved immediate liquidity needs, not financing the budget deficit. Therefore, the need for new borrowings this year have not been reduced, and it will require more radical decisions from the MoF as to which maturities it will offer, as well as being open to the possibility of raising interest rates.
