The NBU is maintaining an active presence in the interbank FX market in order to smooth out the excessive hryvnia exchange rate volatility, which has intensified over the past week as market sentiment has worsened amid heightened uncertainty over whether the coronavirus will continue to spread around the world and to rattle the global financial and commodity markets.
Ukraine has emerged virtually unscathed from the coronavirus’s global spread in February and early March, with Ukrainian exports continuing to rise. Further increases in physical volumes of Ukraine’s exports have more than offset certain declines in prices for some of the goods the country exports. Import prices are declining even faster than export prices, especially energy prices, reducing the value of imports. Meanwhile, foreign investors have not significantly cut back on purchases of Ukrainian hryvnia government debt securities in recent weeks.
Existing conditions in Ukraine’s FX market, both interbank and retail, have thus been primarily driven by a psychological factor that will likely blow over soon. With USD 26.8 billion in international reserves – the highest since November 2012 – the NBU wields sufficient resources to mitigate hryvnia exchange rate fluctuations.
The NBU’s preparedness to use international reserves to keep the exchange rate from being blown out of control has stood the test of time. The NBU made FX interventions during three days last week, selling a total USD 307 million. The central bank has also intervened in the FX market today, selling USD 250 million as of 1 p.m., in order to meet a surge in FX demand that has been fueled by jittery sentiment in the days following International Women’s Day.
The NBU will continue to watch how events around the spread of the coronavirus unfold and how the global financial and commodity markets respond, and will continue to intervene to smooth out excessive exchange rate fluctuations as it sees fit.
Money market conditions remain stable as the banking system maintains a sufficiently high level of liquidity, with some UAH 230 billion in hryvnia liquidity and over USD 8 billion in FX liquidity. The banks thus have enough money that they would be able to operate without interruption even if consumer and business sentiment worsened as a result of negative headlines coming in from the global markets. At the same time, the NBU stands ready to support the banking market, should the need for liquidity arise.