NBU bans foreign currency purchases until week-end

Ukraine’s central bank (the NBU) made a new attempt to put currency market under control by banning the banks to buy foreign currency at their clients’ orders till Feb. 27, according to NBU resolution published on Feb. 25. The NBU also limited ability of the banks to purchase currency for their own purpose. The measures were taken amid a panic on ForEx market – hryvnia  devalued to nearly UAH 34 / USD on Tuesday to lose more than 20% in five days.

Alexander Paraschiy: Such measure of the central bank would allow it buying some time to prepare new strict measures this week. Though, such limit will unlikely curb panic on the market, nor it will change macroeconomic factors that create pressure on hryvnia. Importantly, the NBU did not stop printing new hryvnia for the budget needs, thus only fuelling the hryvnia’s weakening: UAH 10.6 bln of state bonds have been purchased by the central bank in February, to date.

Uncertainties regarding potential IMF deal as well as reluctance of the government to stop the hryvnia-printing practice are the main reasons for new hryvnia devaluation wave. Austerity measures, as well as substantial external financial support could add confidence at the market. But the authorities ignored basic macro-safety rules and continued to rely on aggressive hryvnia printing in their overoptimistic state budget plan for 2015. Prospects of the national currency remain murky without radical revision of state’s spending plan.