Igor Mazepa: the National Bank of Ukraine has enough reserves to ward off slight pressure on the hryvnia by nonresident owners of government bonds12 March 2020
Igor Mazepa, the founder and CEO of Concorde Capital investment company, discusses the global crisis, the possible outflow of foreign investors and the National Bank of Ukraine instruments for warding off pressure on the hryvnia
In the conditions of an emerging global crisis, it’s likely that nonresidents will remove from Ukraine their funds from their repaid government bonds. However, the National Bank of Ukraine (NBU) has reserves to ward off this pressure on the hryvnia, says Igor Mazepa, the founder and CEO of Concorde Capital investment company.
In a situation of uncertainty and turbulence, investors always react in the same way – they sell their bonds with a rating of B and lower (B is the level that Ukraine is currently at.) And that’s even when this rating for our securities has grown for the last year, Igor Mazepa told the Interfax-Ukraine news agency.
The confirmation of this is Black Monday on March 9 this year, for which there is no Ukrainian context. And the hryvnia exchange rate, and the decreasing value of bonds that began already at the start of last week, as well as Belarus’s inability to place its Eurobonds, and Lebanon’s default, and the predefault condition of Ecuador – all of these are signals of an advancing global crisis that began with the coronavirus in China, Mazepa said.
High volatility in many currencies is being demonstrated today on the markets, which applies to not only the hryvnia, but also the Russian ruble, the Turkish lira, the euro and the British pound sterling, he said.
More likely than not, the hryvnia having fallen to UAH 25.5/USD is the result of this panic. Though there isn’t an obvious reason for this panic, Igor Mazepa said. For Ukraine, low prices for oil and growing uncertainty – in which Ukrainians will consume fewer imports and save more – mean an improved trade balance, which has all the chances to become positive for many years.
As to what can affect the hryvnia exchange rate in the longer term, then it’s a situation in which foreigners are exiting the assets of all emerging markets, Igor Mazepa said. Investors are even exiting from European assets, redirecting their investments either towards gold, or American securities. This means that investors, whose debt matures in 2020, are not going to reinvest in new issues that, possibly, will be offered by Ukraine’s MinFin. Most likely, they will take these hryvnias from repaid debt, go to the forex market and buy U.S. dollars with them. That could lead to slight pressure on the national currency, Igor Mazepa forecasted.
At the same time, the NBU’s international reserves at the start of March exceeded USD 26.6 bln and covered four months of imports, when the generally accepted comfort level of reserves is three months of imports, or about USD 19-20 bln.
This number gives the NBU a cushion of USD 7 bln that it can painlessly offer the market. It’s precisely for unforeseen situations, like a crisis in which foreigners exit developing markets. This is that cushion that the National Bank has to support the hryvnia, Mazepa said.
Igor Mazepa, CEO and founder of Concorde Capital, offered his comments to Interfax-Ukraine