Today the National Bank of Ukraine has held a regular foreign exchange auction.
The regulator received 67 bids worth USD 160.447 million from banks. The ceiling exchange rate was USD 14.25 per USD 1, with the amount of bids at this rate totaling USD 1 million. The cut-off rate was set at UAH 13.75 per USD 1.
The National Bank of Ukraine accepted 38 bids for a total of USD 111.90 million.
Director of General Monetary Policy Department Olena Shcherbakova emphasized that given the fact that the situation in the banking sector remained difficult with the ongoing deposit outflow and growing demand for foreign exchange, the National Bank of Ukraine had decided to improve the format of its operation on the interbank foreign exchange market and hold foreign exchange auctions.
"We have resorted to auctions. An auction provides a bank with an opportunity to submit a bid to the National bank and purchase foreign exchange. It is a market instrument. There are no limits on the number of bids. Banks only have to deposit hryvnia. A bank submits a bid, and if the exchange rated indicated in the bid is equal or higher than the cut-off rate, the National Bank satisfies the bid. It seems to me that that this mechanism is very transparent," she said, adding that a similar mechanism operates in the government securities market.
In the course of the auction, bids for the sale of foreign exchange at the ceiling rate were satisfied in the first instance and in full, which is in line with the rules of the conventional Dutch auction. The central bank has deliberately opted for the Dutch auction in order to meet the deferred demand from clients of banks that were not able to purchase foreign exchange on time due to administrative restrictions in place on the foreign exchange market.
Banks that failed to remit the required amount of funds on time and in full to the National Bank of Ukraine were refused admission to the auction.
According to Olena Shcherbakova, these actions and active participation of the central bank in the operation of the interbank market will help improve the situation in the banking sector and provide stimuli to put the exchange rate of the national currency firmly on an appreciating path.
The next auction has been scheduled for September 25, 2014. Should there be demand from market players, the National Bank is ready to sell USD 200 million. Participation in the auction is open to all banks without exception. Banks may submit unlimited number of bids to meet the needs of their clients for foreign exchange. The minimum bid amount is not less than USD 500 thousand. Banks have to remit the cash collateral in the national currency to the regulator's account that will be used to pay for foreign exchange.