Central bank is applying manual control to the hryvnia exchange rate

The population today can look at the currency exchange only through the glass

Photo: Ivan Chernichkin

The National Bank of Ukraine (NBU) managed to strengthen the hryvnia exchange rate to UAH 12.95/USD, the authority reported on its official Facebook page. This was the rate for trading on the interbank market on September 24. Also, yesterday the NBU sold US $134.6 mn at auction, thus satisfying 50 applications submitted by 24 banks at the same rate, according to the regulator.

Remunerable rate

Governor of the NBU Valeriya Hontareva says a hryvnia rate of UAH 12.95/ US $1 has a positive impact on the balance of payments and ensures the economic security of Ukraine. At the same time, she believes that despite the problems in the economy, the balanced, fair and economically feasible rate is UAH 12.90/USD. She says this level of the average rate of the hryvnia should be built into the draft budget for 2015. “12.90 is the rate that we need to maintain. And as soon as we start reconstructions in the Donbas region and our steelmakers begin running at full capacity, we will be able to consider returning to the balanced state that we saw in July. In particular, when the rate was UAH 11.70/USD our trade balance was practically balanced,” says Hontareva.

Yesterday, President Petro Poroshenko also expressed his support of the national currency. “Grain prices dropped by 40% and iron ore prices fell by 50%. Also, foreign currency inflows decreased. Investments are not coming into the country due to the conflict in the east. The exchange rate of the U.S. dollar is an unbiased reflection of such processes. Today, somebody is trying to start a war within the state,” said Poroshenko. He stressed the combined efforts of all branches of power and coordination of their actions should protect the Ukrainian currency and citizens from inflation and instability. “I assure you that I will do everything in my power to cease the attack on the hryvnia, put an end to profiteering and restore stability,” said Poroshenko.

Manual happiness

So far the authorities managed to achieve at least a measure of stability of the exchange rate of the national currency by applying so-called “manual methods” that were earlier actively criticized by the current government and the top management of the NBU. On Tuesday the top managers of commercial banks met with the president, the premier and governor of the NBU behind closed doors. Later the bankers said that at the meeting the country’s leaders announced a new exchange rate for the sale and purchase of currencies. As it turned out, based on the recommendations of the authorities, exporters should not sell and importers should not buy dollars at rates above UAH 12.95/USD.

“Such an agreement allows for calming the foreign exchange market and cutting off small-time speculators attempting to gain a profit on this market. They are detrimental for the people and the state budget. Therefore, I believe this is a positive signal for the foreign exchange market,” said Chairman of the Ukrainian Interbank Currency Exchange Anatoliy Hulei. Head of the Department of Operations on Foreign Exchange Markets at OTP Bank Maksym Davlad agrees with Hulei noting that the result of such arrangements is evident. “The rate of interbank transactions has been lowered and the cash market outside of banks is 1 – 1.5 hryvnia higher, though it is still lower than UAH 15.00/USD. However, a similar situation was observed two weeks ago, when the market could not withstand the limit of UAH 12.0 – 13.50/USD and surged to the level of UAH 15.00/USD,” he stressed.

Not everyone on the market feels good vibes from the control of the national currency exchange rate, assuming that it will have a negative impact on exporters and importers. “Importers are starting to line up. Their number is exceeding the number of exporters threefold. There are also complaints from customers, who cannot buy currency in banks seeing the rate of UAH 12.95/USD.

Legal entities will face the same scenario that individuals running from one currency exchange outlet to another experienced. As a result, we will see less imported goods on the shelves of Ukrainian stores. In the long run this is a positive sign, but at the moment it will be impossible to quickly arrange import substitution,” complains a treasurer of a major bank on condition of anonymity.

Hulei believes that individuals will see the fixed rate in exchange offices as early as next week, when financial institutions adjust their internal processes to the new regulations.

At the same time, agreements between the government and the business could not have a major impact on the shadow forex market, which began picking up speed after the NBU introduced a number of restrictions on currency transactions. “The black market is gradually acquiring a certain degree of autonomy from the processes on the open foreign exchange market,” said Head of the Finance Ratings Department at IBI-Rating Anna Apostolova. Experts believe that the shadow market needs a few more weeks to balance out and compensate for losses from the sale of previously purchased expensive currency at a lower rate. For now its price for the U.S. dollar is fixed at UAH 13.50 – 14.20.

Hopeful future

A few weeks earlier the NBU attempted to support the national currency via agreements with the largest commercial banks regarding the exchange rate on the interbank market, says Apostolova. “A certain effect was achieved, but only for a very short time. After that the exchange rate continued to surge both on the interbank and cash markets. It should be understood that the main factor of pressure on the exchange rate is the overall economic and political situation. Consequently, without achievement of stabilization in this direction all measures taken by the authority will have partial and temporary effects and devaluation of the national currency will continue,” she said.

Hulei predicts that taking into account the value of the hryvnia built into the state budget for 2015 the exchange rate should fluctuate within the corridor of UAH 12.50–13.50/USD, taking into account seasonal variations in the spring and autumn (within the range of UAH 0.50).