Ukrainian central bank starts withdrawing licences for conducting Fx operations to maintain hryvnia stability.

By bne IntelliNews December 17, 2013

The National Bank of Ukraine (NBU) has withdrawn the licence to perform Fx currency operations of Brokerage House Opening, local news website Delo.ua reported. The reason behind the withdrawal has not been announced officially but it is largely speculated that the central bank is losing control over the currency market.

Over the past few weeks the market volatility has increased significantly. On Dec 16, the interbank rate closed at UAH/USD 8.3/1, which is almost 4% higher than the official NBU’s rate.  The cost of the dollar on the cash market has also exceeded the guidelines of the National Bank. According to recent data, the average purchase price of the dollar in exchange bureaus reached UAH/USD 8.26/1, and the sale price – UAH/USD 8.3/1. For the central bank, which states that maintaining the national currency stability is its top priority, this can be considered as a failure. As a result, the NBU has started to take appropriate measures to stabilize the exchange rate of the national currency, writes Delo newspaper.

Over the recent weeks, the central bank has been trying to limit commercial banks’ hryvnia liquidity, so that resources do not reach the interbank market, according to Dmitry Boyarchuk, director of the Center for Social and Economic Research. NBU first offered dollars on the interbank market and thus bought national currency, thereby balancing the supply/demand. After that, the regulator reduced the hryvnia sale, expecting the commercial banks to begin selling dollars cheaper. In a situation of instability, when financial institutions are facing increased outflow of deposits, this has become an effective mechanism of influence. An evidence for liquidity problems is the cost of the average interest rate on overnight loans, which is an indication that there is a shortage of financial institutions liquidity to meet NBU standards. The peak was reached on Dec 9, when the rate increased to 21% per annum (on Nov 25, the rate was 5%). Furthermore, on Nov 25, cash balances in the banking system stood at UAH 25bn and by Dec 16 they declined to UAH 20.8bn.

The NBU has also increased interventions on the foreign currency market – a mechanism that the central bank has been using for a long time quite successfully. However, the contraction of foreign reserves (down by 23.45% in ytd terms from USD 24.55bn as of Jan 1 to USD 18.79bn as of Dec 1), seriously limits the opportunity of the bank to continue carrying out such interventions. Ukraine's international reserves are already below all the normative values. The current reserves will finance imports finance for less than 2.5 months (compared to an acceptable 3 months), the WB believes.

The central bank is still trying to influence the exchange rate on the interbank market through interventions by the state-owned banks, however, even they won’t be able to intervene for much longer. December has always been a difficult period for the national currency-the demand for foreign currency is traditionally high due to people traveling on New Years’ holidays.  However this year, the pressure is twice as high due to prolonged political crisis in the country.

Probably the most effective non-monetary but regulatory tool that remains at NBU’s disposal for controlling the situation is the revocation of licences of the most active speculators on the foreign exchange market. The withdrawal of the licence of Brokerage House Opening was not the first on the list. Earlier, the NBU decided to revoke the licence of LLC Sparta Capital and LLC PKTB Securities. Following the financial companies, the commercial banks may also fall under the sanctions.

The current problems on the foreign exchange market are not the result of the recent political events in the country, but the consequences of the problems that led to these riots, writes Delo newspaper, citing Vladimir Dubrovsky. According to various estimates, the state budget deficit can reach UAH 100bn (USD 12.2bn) at year-end. In the absence of a loan agreement with Russia, the IMF or the EU, the central bank’s only option to eliminate this “hole” will be to start printing money. But additional hryvnia liquidity may prove fatal for the NBU. Thus the central bank will further try to maintain liquidity of the banking sector to preserve hryvnia stability.

Source: http://delo.ua/

Related Articles

Ukraine central bank slams PwC over PrivatBank audit

The National Bank of Ukraine (NBU) has accused PricewaterhouseCoopers, PrivatBank's auditing firm, of providing an inadequate evaluation of collateral under loans provided by the çountry's ... more

Ukraine's Odesa Port Plant suspends operations after privatisation tender fails

Ukraine's Odesa Port Plant (OPP) will suspend operations due to unfavourable economic conditions, including overpriced natural gas supplied by national gas monopoly Naftogaz, the fertiliser company ... more

Privat investigations: PrivatBank lending practices threaten Ukraine’s financial stability

The problems at PrivatBank, co-owned by oligarchs Igor Kolomoisky and Hennady Boholyubov, have forced the Ukrainian government to nationalise the country’s largest commercial bank, putting an ... more

Register here to continue reading this article and 2 more for free or purchase 12 months full website access including the bne Magazine for just $119/year.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

If you have any questions please contact us at sales@intellinews.com

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at sales@intellinews.com

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.

Dismiss