The second NBU auction failed to knock down the demand for dollars

Photo: Ivan Chernichkin

The NBU’s new attempts to stabilize the exchange rate of the hryvnia failed. On September 19, trading on the interbank foreign exchange closed with another decline in the value of the national currency to UAH 14.55 UAH/USD from UAH 14.10/USD. As reported by InterBusinessConsulting, at 3:45 pm on Friday, the bids for the dollar opened with quotations of UAH 14.10-14.40/USD, and by the closing hour they reached UAH 14.60-14.90/USD on some transactions. The NBU says the average weighted rate on the interbank by 2:00 pm on Friday was 13.43 UAH/USD. At this level the authority set the official exchange rate of the national currency, which was the highest rate since August 29, when it reached 13.60 UAH/USD.

Interfering with the plans

In September the Ukrainian currency has been devaluating against to the dollar, despite the fact that at the beginning of the month the NBU held two auctions for the sale of foreign currency. The NBU resorted to using such an instrument for the first time since 2010. At the first auction held on September 8 the NBU set a condition for banks – a maximum of one bid for up to US $1 mn with an indication of target needs.

The NBU has slightly eased the demands for the second auction, which was held this past Friday, allowing financial institutions to submit an unlimited number of bids of up to US $500,000. “During the procedure all the rules of the classic Dutch auction were observed. Bids for the sale of currency at high rates were satisfied in the first instance,” said the press service of the NBU. According to the authority, the highest rate at the auction was 14 UAH/USD with a bid of US $3 mn. “The cutoff rate announced by the NBU was 13.55 UAH/USD. This time the bank sold US $44.5 mn,” said representatives of the NBU.

Only one bid was made at a high rate. Therefore, there are no reasons to say that the market is working at this level, representatives of the bank claim. “The NBU has specifically chosen the method of intervention in the form of a Dutch auction, since there has been information on the market that many customers were not able to buy currency due to administrative restrictions on the foreign exchange, which in turn led to a deferred demand for foreign currency,” informed the press service of the NBU.

Feasibility

Some experts interviewed by Capital say that the current demand for the U.S. currency, which according to various estimates reaches hundreds of millions, will be impossible to satisfy with interventions to which the NBU is resorting. Moreover, simultaneously with the sale of the currency the NBU buys dollars. As it was previously reported, in August the NBU bought US $354.8 mn and sold US $309.6 mn on the interbank currency exchange, which means the net purchase of dollars was US $45.2 mn.

Nevertheless, representatives of the NBU promise to proceed with currency auctions based on the Dutch system. The next auction will be held on Tuesday, September 23, said the NBU. It plans to sell US $200 mn, if there are a sufficient number of bids. “Every bank will have the right to submit to the NBU a large number of bids in the minimum amount of US $500,000 (with indications of target needs) and transfer to the authority’s account the required amounts in local currency to pay for foreign currency,” the message from the NBU reads.

Vague prospects

Earlier, Governor of the National Bank of Ukraine Valeriya Hontareva said that the exchange rate of UAH 11.5–11.9/USD was considered to be balanced. This being said she added that weakening of the Ukrainian currency was caused by the reaction to the events in the east of the country. Just over a week ago, after a meeting with the heads of the 40 largest Ukrainian commercial banks, Hontareva stated slightly different figures. “Once again the attendees of the meeting stressed that the rate of UAH 12.50–12.90/USD was most adequate for today and, hoping for the truce, said they were expecting improvement of both the current situation and the future of the country in general,” the press service of the bank quoted the governor.

The day before, First Deputy Governor of the NBU Oleksandr Pisaruk confirmed that the rate of UAH 12.50–13.00/USD was fair. The official also said that the NBU would use all tools available, including administrative ones, to influence the foreign exchange market and stabilize the exchange rate.

Senior Analyst at the International Center for Policy Studies Oleksandr Zholud believes the efficiency of such measures as foreign exchange auctions will depend on the willingness of the NBU to sell sufficient amounts of currency. However, Zholud says in this regard the NBU must constantly consider agreements with the IMF on the limits of forex reserves.

Some experts assume that attempts to stabilize the hryvnia through intervention will not bring the desired result. “We need to work with exporters, so that they start selling the currency, as well as with the population so that it also tips the currency balance in favor of the hryvnia,” says Managing Partner at Capital Times IC Erik Nayman. At the same time, for now experts are not making any predictions regarding further fluctuations of the hryvnia exchange rate.