Ukraine central bank measures strengthen hryvnia

Ukraine’s hryvnia strengthened at the ForEx market on Feb. 25 to UAH 28/USD after the National Bank of Ukraine (NBU) tightened requirements for purchasing foreign currency at its clients’ requests and limited the ability of banks to buy hard currency for their own purposes. The new regulation froze demand for hard currency, effectively making the NBU the only buyer of dollars on the market.

This enabled the NBU to buy USD 80 mln from exporters (75% of export revenues are subject to compulsory sale at the maket) and set any price it wanted, aiming for a more expensive hryvnia. The NBU said it will commit the purchased foreign currency for interventions in the upcoming days.

Notably, in the beginning of the day, the NBU was buying  dollars from exporters at UAH 21.7 (which was 33% below the previous day’s market rate), but after multiple complaints from exporters, the regulator revised the prices of the completed deals to UAH 28.04/USD. Another concession demonstrated by the NBU on Feb. 25 was the cancellation of its foreign currency purchase ban (initially valid till the weekend) already at the day’s end.

Alexander Paraschiy: What we witnessed were standard attempts by central bank authorities to apply administrative pressure whenever the situation at the ForEx spins out of their control.  Such measures weren’t effective in the past and tightening conditions for importers will not help this time either.

Instead, the authorities are failing to address the core problem, which is large-scale hryvnia printing on the heels of low market confidence in them. Without changes in fiscal policy, further hryvnia decline is inevitable.

What’s more, with such sharp moves and waffling in its policies in the span of just a few hours, the NBU is only adding uncertainty to the market, which can add even more selling pressure to the local currency.