NBU forex interventions decrease 26% in October

In October, Ukraine’s central bank sold net USD 496.4 mln on the interbank forex market to maintain the UAH exchange rate, according to data released by the National Bank of Ukraine yesterday. Mykyta Mykhaylychenko: This was 26% less than in September. Subsequently, UAH depreciation vs. the US dollar was within 0.5%. Excessive foreign exchange demand in the local market stems, in part, from the widening current account deficit while currency inflow through the financial account is reaching the forex market at a slower pace. On top of that, depreciation pressure on the hryvnya comes from the cash market, where demand exceeded supply by USD 1.9 bln, 16% more than in September. The latter is explained by both an increase in demand from households as well as larger “shadow economy” transactions. We still expect the UAH exchange rate to remain broadly stable in the coming months, providing successful negotiations with the International Monetary Fund, while some short-term fluctuations are possible.