Ukraine central bank eases restrictions on ForEx operations

The National Bank of Ukraine (NBU) announced on March
29 it has removed a number of temporary administrative restrictions on foreign
currency operations. The central bank cancelled the limits on foreign currency
net sale by banks on the ForEx starting March 30. Previously, the daily
currency net sale should not have exceeded 1% of bank’s regulatory capital.

Starting May 1, limits on the bank’s open currency
position will rise to 3% from 1% of regulatory capital for long positions (FCY
assets exceeding liabilities) and to 10% from 8% of regulatory capital for
short positions.

Following its previous resolution on March 2, the NBU
further enlarged the list of Ukrainian borrowers allowed to repay their
external loans ahead of schedule, as well as removed the requirement on the
compulsory sale of 50% of foreign currency receipts for some operations of
exporters.

The regulator also simplified foreign currency
payments related to the legal proceedings of Ukrainian companies abroad.

Evgeniya Akhtyrko: Apparently,
the market’s acceptance of the NBU’s previous liberalization measures prompted
the regulator to introduce another set of easing soon after its previous
decision. In our view, the increased limits on bank currency positions might
result in a one-off surge in currency demand as banks will use this opportunity
to increase their currency stocks.

In addition, the absence of limits on daily
currency net sale is likely heighten exchange rate volatility during trading
sessions. Trading volume on the ForEx – and overall FCY-liquidity – should also
increase as banks will be less restricted in managing their foreign currency
resources. This should reduce the need for central bank interventions into the
market.