Government of Republic of Estonia : FX Reserves and IFEM Movements in December

FX Reserves and IFEM Movements in December

At end-2019, NBS FX reserves were at their highest gross and net levels since 2000, when their monitoring began.

According to preliminary data, gross FX reserves stood at EUR 13,378.5 mn at end-December, ensuring 174% coverage of money supply M1 and six months' worth of the country's imports of goods and services, which is twice the level prescribed by the standard on the adequate level of coverage of the imports of goods and services by FX reserves.

The EUR 2.1 bn increase in gross FX reserves in 2019 is fully attributable to NBS activity in the domestic FX market in the form of net FX purchases (EUR 2.7 bn), which is the healthiest way to boost reserves, since it does not imply any borrowing or incurrence of other liabilities. NBS FX reserves increased in an environment where the government vigorously lowered its FX liabilities under loans and securities (EUR 0.8 bn net).

Net FX reserves (FX reserves less banks' FX balances on account of required reserves and other requirements) came at EUR 11,441 mn at end-December, up by EUR 2.6 bn y-o-y and EUR 43 mn m-o-m.

At the same time, gross FX reserves recorded an EUR 86.2 mn decline m-o-m. Net inflows to FX reserves stemming from NBS activities in the IFEM (EUR 310.0 mn) almost entirely covered the net outflows on account of government FX liabilities (EUR 337.4 mn).

Net inflows from donations (EUR 48.7 mn), efficient FX reserve management and other sources (totalling EUR 82.7 mn net) largely compensated for the net outflows driven by the customary end-of-year bank activity in respect of FX reserve requirements (EUR 149.4 mn). Market factors also exerted a negative net effect on FX reserves in December (EUR 40.8 mn).

Trading volumes in the IFEM amounted to EUR 739.7 mn in December, up by EUR 173.2 mn from a month earlier. Overall in 2019, interbank trading volumes totalled EUR 6,303.7 mn.

The value of the dinar against the euro stayed almost unchanged in December. Overall in 2019, the dinar appreciated by 0.5% against the euro in nominal terms. In December, the NBS intervened in the IFEM by buying EUR 370 mn and selling EUR 15 mn. In 2019 as a whole, the NBS bought EUR 2,695 mn net (buying EUR 3,100 mn and selling EUR 405 mn).

Governor's Office