Today, on 29 December 2016, the interbank FX market continues to see temporary excess demand for foreign currency driven by simultaneous pressure of a range of factors.
On the one hand, FX supply hinder the availability of hryvnia liquidity and, respectively, the absence of need to sale currency returns from exports companies, which during last and current week received VAT refund amounting to UAH 12.5 billion.
At the same time, recent days the demand of market participants for the foreign currency significantly increased due to the need of companies to make payments under FX loans in the end of the year.
Please note that devaluation pressure on hryvnia this week is not connected with transition of CB PRIVATBANK PJSC to state ownership. Proposition that outflow of deposits from bank provokes excessive demand in the FX market has no substance.
First of all, Inflow of households funds to other banks two-fold exceeded the outflow of households deposits from CB PRIVATBANK PJSC beginning from 19 December 2016. Moreover, period of the outflow was short: only three days, and then the return of individuals’ funds to financial institution recovered. At the same time, inflow to accounts of legal entities in other banks under VAT refund compensated the outflow of deposits of legal entities from CB PRIVATBANK PJSC.
Secondly, households’ sale of foreign currency continues to exceed its purchase in the cash FX market. In December, for fractions of month, banks’ net purchases of foreign currency from households amounted to USD 34 billion.
Thirdly, liquidity support in the amount of UAH 25 billion, which NBU provided last week to CB PRIVATBANK PJSC, was only partially aimed at covering outflows of deposits as well as at maintenance of required provisions, which bank failed to maintain almost a year before transition to state ownership.
Overall, there is no fundamental reasons for hryvnia exchange rate fluctuations: the FX market continues to benefit from favorable fundamental market factors. Earnings from grain sale continued to inflow, and favorable trends in the global markets of ferrous metals and metal ore persist.
As before, the NBU is ready to perform foreign exchange interventions to smooth out excessive exchange rate volatility caused by temporary factors and has enough instruments to make it. Ukraine’s international reserves currently amount to USD 15.6 billion. This amount is sufficient for conducting foreign exchange sale interventions and enabling the NBU and the Government to settle their foreign debt obligations, and this amount covers liabilities of NBU to the IMF under Extended Fund Facility Arrangement with Ukraine (EFF).
This week, NBU held two FX sale auctions and satisfied market participants in the amount of USD 144 million.
With a view to maintain the situational pressure on hryvnia exchange rate, NBU is still present in the interbank FX market. On 29 December 2016, the National Bank of Ukraine also announced a FX sale auction to prevent excessive volatility of hryvnia exchange rate. Auction amount: up to USD 100 million.