Ukraine central bank again tightens foreign deposit rules

The National Bank of Ukraine (NBU) is again tightening its reserves requirements on foreign currency deposits since September, the NBU stated in its September 19 resolution. Long-term foreign currency deposits (over 12 months) will require a 7% reservation rate.

Alexander Paraschiy: The decision marks the second tightening of foreign currency deposit requirements in the last three months. The central bank increased to 5% the reserve requirement for long-term deposits as of July 1 (3% previously), short-term deposits to 10% (9% previously), and foreign currency on current accounts to 15% of the sum (10% previously).

This move means that the NBU is disturbed by the situation on the ForEx market and the regulator is taking preventative steps against the devaluation of the local currency that have already started this month. To some extent, it will stimulate a further drop in foreign currency deposit interest rates.

However, we doubt it will achieve its goal of stimulating foreign currency deposit transit into hryvnias. After the previous reserves tightening in July, foreign currency deposits increased 0.9% m/m after a six-month consecutive decrease (-3.0% ytd by June).