In view of heightened hryvnia exchange rate volatility and some tensions in the foreign exchange market, the National Bank of Ukraine has persisted in taking measures to maintain foreign exchange market equilibrium. Thus, as part of its efforts to bolster its presence in the interbank market and deploy available instruments designed to stabilize the foreign exchange market, on September 19, 2014, the National Bank held a foreign exchange auction.
It was conducted in full adherence to the rules of the conventional Dutch auction, under which bids for the sale of foreign exchange at the highest exchange rate enjoy priority over other bids and are satisfied in full.
The highest exchange rate was UAH 14 per USD 1, with the amount of bids submitted at this rate totaling USD 3 million. The cut-off rate announced by the central bank was UAH 13.55 per USD 1. USD 44.5 million was sold through this auction.
Participation in the auction was open to all banks without exception. Banks were able to submit unlimited number of bids. The minimum bid amount to participate in an auction was not less than USD 500. During the auction only one bid was submitted at the rate of UAH 14 per USD 1. There are no grounds to assert that the market operates at this level. The National Bank of Ukraine has deliberately opted for the Dutch auction to carry out foreign exchange interventions in an effort to reduce deferred demand for foreign exchange that has emerged as a result of clients' inability to purchase foreign exchange on time due to administrative restrictions in place on the foreign exchange market.
The next auction is scheduled for Tuesday, September 23. The National Bank of Ukraine is ready to sell USD 200 million through this auction, should there be demand for it from the market.
As in the previous auction, each bank may submit unlimited number of bids indicating the intended purpose of acquisition of foreign exchange to the National Bank of Ukraine. The minimum bid amount is not less than USD 500 thousand. Banks are required to transfer the cash collateral in the national currency required to pay for foreign exchange to the account of the central bank.
Since early September, it is going to be the third time that the National Bank of Ukraine will hold an auction for the sale of foreign currency (US dollars) in exchange for hryvnias to meet the accumulated demand for foreign exchange. These targeted foreign exchange auctions pave the way for putting the exchange rate of the national currency firmly on an appreciating path.