US President Joe Biden’s suggestion on Wednesday that if Russia opted for a “minor incursion” into Ukraine that might not trigger the severe sanctions the West promised and “we end up having a fight about what to do and not do” made waves yesterday. Although the White House immediately clarified that “if any Russian military forces move across the Ukrainian border, that’s a renewed invasion, and it will be met with a swift, severe, and united response from the United States and our Allies,” Ukrainian President Volodymyr Zelensky went on Twitter “to remind the great powers that there are no minor incursions and small nations.”

The NBU hiked its key rate by 100bp to 10.0% and revised its base-case key rate forecast, envisaging another 100bp hike at the next meeting on Mar. 3, to 11%. The Bank plans to keep the key rate at 11% (vs. 8.5% in previous forecast) by end-3Q22, with a first 50bp cut seen in October, followed by more cuts, to 8.0% by end 2023 and 6.5% by end-2024. The Bank said its monetary would remain moderately tight over the forecast horizon. In addition, the NBU will raise obligatory reserves requirements for current accounts in UAH and all F/X deposits by 2.0pp to 2.0% and 12%, respectively, effective February, aiming to cut the banking system’s structural excess liquidity and thereby improve the monetary transmission mechanism. Additional bank liquidity measures will be considered in March.

WSE-listed Kernel Holding, Ukraine’s largest sunflower oil producer and grain exporter, reported its 2Q22FY (October-December 2021) operating results. Vegetable oil sales totaled 399 kt (-6% y-o-y), with the volume of oilseeds crushed down 2% y-o-y to 985 kt as farmers were more reluctant to sell their harvest given the extremely profitable previous season.

Ukraine’s agricultural production increased by 14.4% y-o-y in 2021, according to preliminary estimates from the State Statistics Service, rebounding from a 10.1% y-o-y decline in 2020. The crop farming segment expanded by 20% y-o-y (vs. -12% in 2020) on a bumper grain and oilseed harvest. Animal farming registered a drop of 4.4% y-o-y (vs. -2.5% in 2020).

In new developments around Ukraine’s security situation yesterday: • US President Joe Biden, speaking at a press conference marking his first year in presidential office, said he was not sure Russian President Vladimir Putin had made up his mind about whether to invade Ukraine, adding “I believe he’s calculating what the immediate, short-term and … long-term consequences for Russia will be.” Answering a different Russia-related question, Biden said “my guess is he will move in, he has to do something” while “trying to find his place in the world between China and the West.” But he did not rule out Russia’s potential attack might be limited to a “minor incursion” in a bid to avoid the sanctions the US threatened with (“if they invade … their banks will not be able to deal in dollars”).

Natural gas consumption in Ukraine fell by 9.4% y-o-y to 28 bcm in 2021, including 8.6 bcm used by households (+5% y-o-y) and 6.3 bcm by heating utilities (-24%). Industry and the public sector cut consumption by 3% to 11.9 bcm. Adjusted for gas volumes used for technical needs, actual consumption fell 6% y-o-y to 27.3 bcm

A summary of recent Ukrainian government bond auctions and scheduled redemptions.

In a new diplomatic effort to defuse tensions around Ukraine caused by Russia’s ongoing military buildup, US Secretary of State Antony Blinken will meet Ukrainian leaders in Kyiv today before traveling to Germany tomorrow, in the wake of German Foreign Minister Annalena Baerbock’s visit to Moscow yesterday, and holding talks with his Russian counterpart Sergey Lavrov in Geneva on Friday. Meanwhile, the Russian embassy in the US, responding to US statements about the absence of de-escalation on the Ukrainian-Russian border, said “Russia is not going to attack anyone” and urged the US to stop its military aid to Ukraine and “use its influence on the Ukrainian authorities to convince them to stop sabotaging the Minsk agreements [on the conflict in eastern Ukraine]” in order to promote a diplomatic settlement. In other noteworthy mentions: • Turkish President Recep Tayyip Erdogan was quoted by media as saying Russia’s invasion of Ukraine was not a “realistic option” as Ukraine was a “powerful” country and “for Russia to take that step, it would need to revise the situation in the whole world and its own.” He added he planned to discuss the issue with Russian President Vladimir Putin. • CNN, citing the Ukrainian Defense Ministry’s latest intelligence assessment, said Russia has “almost completed” its buildup of forces for offensive purposes, including 106,000 ground troops and an additional 21,000 in the “sea and air components.”

The Ministry of Finance placed UAH 0.1bn of hryvnia-denominated bonds and $143m of USD paper at an auction yesterday, for a total of UAH 4.1bn or $147m.

WSE-listed Kernel Holding , Ukraine’s largest sunflower oil producer and grain exporter, announced a third share buyback tender, offering to repurchase up to 3,780,000 shares at PLN 50-60 per share. The tender will open on Jan. 21 and close on Jan. 27, with the buyback price and number of shares being repurchased to be announced provisionally on Jan. 31 and the indicative settlement date set for Feb. 3. Expenses for the tender, to be organized under modified Dutch auction rules, were capped at PLN 189m ($47m).

Ukrainian banks’ outstanding gross UAH loans decreased by 1.0% m-o-m in December (still +23% y-o-y) in December after rising 2.6% m-o-m in November, while gross F/X loans dipped by 0.1% m-o-m (-11% y-o-y). Total hryvnia-denominated deposits increased by 9.4% m-o-m in December after growing 1.3% in November, with the y-o-y growth tally at +21.4%. F/X deposits fell 1.2% m-o-m after sliding 1.7% m-o-m in November and were down 0.6% y-o-y.

Several domestic natural gas producers sold 1.3 million cubic meters of gas at an average price of $409/tcm (including VAT) at an inaugural regulated-price auction.

A Kyiv court began hearings yesterday to set pre-trial restrictions for former president Petro Poroshenko in a treason probe, with prosecutors demanding arrest with the alternative of UAH 1bn ($35m) bail. The court session lasted 11 hours and was adjourned until Jan. 19.

Ukrnafta scheduled an EGM for Feb. 17, proposing to vote on a transfer of assets to Nafta-Active LTD, wholly owned by Ukrnafta.

Russian military threat remains a powerful pressuring factor for all Ukrainian securities.