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Finance Ministry looking for compromise with NBU to attract excess liquidity of banks

KYIV. May 6 (Interfax-Ukraine) – The Ministry of Finance of Ukraine is experiencing a shortage of liquidity in the State Treasury during the war, while it is excessive in the banking system, the Ministry of Finance is looking for a compromise with the National Bank, Finance Minister Serhiy Marchenko said in an interview with Interfax-Ukraine.

"This situation worries me as the minister of finance. Entering a bond auction, I cannot take this liquidity from banks. Banks are reluctant to lend for a year at 11% when they can lend for a short period at 9%. It is easier for them to invest money in deposit certificates," he explained.

In April, the Ministry of Finance managed to attract about UAH 30 billion at market auctions for the placement of war bonds for a period of 3 to 14 months at rates from 9.5% to 11% per annum, and the NBU directly bought another UAH 50 billion of war bonds. At the same time, the National Bank places overnight deposit certificates at 9% per annum, and in April the volume of their purchases by banks increased from UAH 140 billion to UAH 180 billion.

"We are not going to raise rates for the sake of the market, play with short-term instruments – this is not the time. Therefore, now we are looking for a compromise with the National Bank so that they are also comfortable with the fact that we are sometimes forced to take liquidity from them, and with the fact that It may be better to borrow at regular primary auctions (for placement) of war bonds and thus finance the deficit," Marchenko stressed.

In his opinion, such significant free funds of banks, unfortunately, are not directed either to borrowing or to the economy as lending.

"That is, despite the fact that the NBU finances the budget deficit due to the monetization of government bonds, these funds do not work in the economy. They practically do not go to buy goods and services, do not generate inflation, but settle on bank accounts. Banks just earn on this. I think we need a thorough study by the NBU," the official said.

He believes that there are enough analysts in the National Bank to analyze why this is happening, why the transmission mechanism does not work, why funds do not circulate in the economy.

"That is, the problem in the treasury is dry liquidity, we are as dry as possible. But all the funds are in the banking system, they do not create demand for goods and services to talk about pressure on inflation," Marchenko said.