Ukraine central bank announces ForEx interventions

The National Bank of Ukraine (NBU) announced on Aug. 5 it will pursue a campaign of ForEx interventions. The NBU promised to sell its U.S. dollars at an exchange rate of UAH 12.26/USD and committed itself to buy at a rate of UAH 11.93/USD. The NBU said it does not plan to abandon its free float regime but decided to intervene to calm the ForEx market, which had become destabilized after the Cabinet of Ministers threatened to resign at the end of July. Since that day, hryvinia weakened 5.6%.

Alexander Paraschiy: The NBU’s decision only partially solves the problem of hryvnia volatility. No doubt, when a country adopts a free float regime, economic agents should be ready for exchange rate fluctuations. However, even under free float, predictable instruments should exist to smoothen sudden hikes or drops in the exchange rate. This ad hoc approach with the NBU intervening when it thinks it appropriate does not remove uncertainty for players. Transparent and clear conditions are needed instead (e.g. intervening if the exchange rate deviates by a certain percentage during a given period of time). Still, taking some measures amid nervousness is much better for the NBU than continuing to stand aside.

At the same time, we share the NBU view on the temporary nature of exchange rate volatility. Given that export performance and financial flows are highly dependent on the war-torn eastern regions, we can hardly offer a clear timeframe of hryvnia strengthening. However, we still see solid fundamentals for appreciation as soon as the conflict de-escalates.