Ukraine central bank tightens liquidity

The National Bank of Ukraine (NBU) decided on Dec. 18 to strengthen the reserve requirements for call deposits (to 6.5%) and term deposits (to 3.0%) in all currencies, according to its Dec. 19 decree. Previously, there were no reserve requirements for hryvnia accounts but there were substantial requirements for foreign currency accounts and deposits (from 7% to 15%, depending on the type of account and the legal status of the client). The new degree takes effect on Dec. 31, 2014.

Alexander Paraschiy: With this move, the NBU is aiming to tighten hryvnia liquidity and to ease somewhat regulation of foreign currency accounts and deposits. In essence, this will hardly change the continuing declining trend in foreign currency deposit outflows (which plunged USD 8.7 bln, or 38% YTD, in 11M14) since a lack of confidence in the central bank remains.

At the same time, this move will be effective in curtailing hryvnia supply on the market. Recall, hryvnia printing on the back of panic sentiments was recognized as the main reason for hryvnia weakening since mid-2014. Since then, the NBU has been trying to tighten excess liquidity with all possible measures to reduce devaluation pressure.