On August 5, 2014, the National Bank of Ukraine intervened in the interbank foreign exchange market by offering two-way quotations. The move was aimed at sending a signal to the market players that the National Bank stands ready to neutralize the adverse impact of situational and emotional factors on the hryvnia exchange rate.
Given the absence of the bids for the sale of foreign exchange from market players that day, the National Bank intervened by selling a limited amount of foreign exchange (USD 69 million), thus alleviating excessive volatility and calming the market players who were exhibiting irrational behavior.
Governor of the National Bank of Ukraine Valeriia Gontareva noted that the interventions had satisfied 60% of the bids for the purchase of foreign exchange that accounted for almost one-third of the market turnover and helped ease tension in the market.
According to her, in recent times, the National Bank has intervened by both purchasing and selling foreign exchange. The National Bank of Ukraine's decision to carry out interventions on August 5, 2014, does not mean that it has dropped the idea to maintain a flexible exchange rate and adopt an inflation targeting regime. The move was prompted by the need to address adverse developments triggered by the market players' irrational behavior.
Guided by its objective of maintaining a flexible exchange rate, the National Bank of Ukraine conducts interventions in the interbank foreign exchange market with an allowance for the impact of all situational factors on the exchange rate. The regulator assures market participants that the market will follow a predictable path, which would subsequently enable the economy to reap the full benefits of a flexible exchange rate regime.
“In mid-July, the National Bank of Ukraine purchased foreign exchange in the amount of USD 80 million. Bearing in mind the objective of expanding the stock of international reserves, the National Bank expects that the market conditions and an additional inflow of foreign exchange into the country will subsequently contribute to the built-up of international reserves,” noted Ms Valeriia Gontareva.
The National Bank keeps a close eye on the interbank foreign exchange developments to make sure that exchange rate movements are in line with objective economic factors. Under an IMF-supported program, in April, the National Bank of Ukraine changed the procedure for setting the official hryvnia exchange rate against foreign currencies. It is currently set in the middle of the business day as a weighted average of exchange rates quoted by buyers and sellers on Ukrainian interbank foreign exchange market by 1 p.m.
“Therefore, yesterday we reminded banks that unfortunately agreements registered in the second half of the day were not included in the calculation of the official exchange rate. We suggested that banks should register in accordance with established procedure their agreements for the purchase/sale of foreign exchange in a timely fashion and avoid distorting the information contained in them," emphasized Ms Valeriia Gontareva.