Ukraine national bank resumes interventions amid ForEx volatility

The National Bank of Ukraine (NBU) sold on Jan. 19 USD 40.8 mln through auctions at the ForEx at an average price of UAH 25/USD, according to the Interfax-Ukraine news agency. On Jan. 18, the NBU sold USD 21.3 mln at an exchange rate of UAH 24.55/USD. Previously, the NBU had been purchasing foreign cash at the ForEx, buying USD 42.1 mln on Jan. 6 and USD 1.4 mln on Jan. 12. The interventions were prompted by turmoil at the ForEx in which the hryvnia weakened by nearly 4% to UAH 24.84/USD on Jan. 19 from UAH 23.78/USD on Jan. 5.

Alexander Paraschiy: The global stock market selloff, as well as the IMF’s delayed approval of its third tranche to Ukraine, contributed to nervousness at the ForEx. However, in our opinion, the key trigger for resumed volatility was the improved hryvnia liquidity after large-scale budget outlays at the end of 2015. In particular, we have observed that cash residuals at the banks’ correspondent accounts have exceeded UAH 40 bln starting Jan. 13 after they were UAH 27.7 bln on Jan. 5 (UAH 26.2 bln on average in 2015). Also we see that residuals at the unified treasury account shrunk to UAH 9.0 bln at the start of January compared to UAH 48.0 bln at the start of December. Thus, it looks like large injections of budget money into the system in very late 2015 triggered the turmoil at the market. Against this backdrop, we believe the hryvnia has the potential to strengthen as soon as liquidity falls. By the year end, we project the hryvnia to have weathered such turbulence and stabilize at the UAH 26/USD level.