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NBU MPC members back sale of govt bonds from NBU portfolio, but differ on timing of its application
KYIV. Sept 19 (Interfax-Ukraine) – Members of the Monetary Policy Committee of the National Bank of Ukraine (NBU MPC) at a meeting held on September 7 supported the sale of government bonds from the NBU portfolio, but disagreed on the timing of its start, the regulator said on its website on Monday.
"During the meeting, the MPC members discussed several instruments that could strengthen monetary transmission and absorb the banking system’s excessive hryvnia liquidity. The most effective instrument could be transactions to sell the domestic government debt securities in the NBU’s portfolio, some MPC members suggested… All MPC members supported the use of such a market instrument, but they differed on the timing of its application.
According to them, this would contribute to a further increase in the yield on hryvnia instruments and reduce the impact of the monetary financing of the state budget on the FX market and the price level.
In addition, Such transactions will give market participants (primarily households and businesses) an alternative opportunity to buy risk-free hryvnia financial instruments with an attractive yield and flexible maturity to safeguard their hryvnia savings from inflation.
These transactions will also help revitalize the secondary market for domestic government debt securities, where a gradual increase in yields is already happening. This will, among other things, create price benchmarks and reduce market fragmentation.
Several discussants said that such transactions should be launched as early as possible, taking into account the potentially long lag between this tool’s deployment and outcome. In particular, according to one MPC member, the NBU should immediately give the market a strong signal that the medium-term and long-term yields, under current conditions, should be significantly higher than those currently offered for deposits and domestic government debt securities at primary auctions.
These yields should be in the range of 20%–25% to make hryvnia assets an attractive savings option, several MPC members proposed.
In addition, the discussants put forth an idea that the sale of a part of the NBU’s domestic government debt securities portfolio will not impede the market-based financing of the state budget, as the main reason for the ineffective issuing of government securities in the primary market is their low yields.
