The National Bank of Ukraine (NBU) has withdrawn the licence to perform Fx currency operations of Brokerage House Opening, local news website Delo.ua reported.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/}