In Q1–Q2 2019, the National Bank of Ukraine (NBU) intends to purchase up to USD 15 million a day to build up international reserves. This amount is USD 5 million more than the quantitative indicator used in Q2–Q4 2018.
Please be reminded that in April 2018, in order to enhance transparency of monetary policy in terms of FX interventions, the NBU launched regular announcements on the volume of interventions to purchase foreign currency to replenish international reserves of Ukraine.
The NBU estimates that the daily purchase of up to USD 15 million will have no significant impact on the interbank market. In 2018, the total volume of trade in the interbank FX market grew by 38% to USD 117 billion (without involvement of the NBU), and the volume of the NBU’s interventions to purchase and sell foreign currency amounted to the total of USD 5 billion. Thus, the NBU has the minimal impact on the exchange rate.
At the same time, depending on market conditions, the NBU’s interventions to purchase foreign currency may constitute a lower amount or not occur at all. The amount purchased in one day may exceed the announced amount; however, such interventions are conducted for other purposes set out in the Foreign Exchange Intervention Strategy of the National Bank of Ukraine for 2016-2020, in particular to smooth out major fluctuations in the FX market.
When conducting FX interventions, the NBU will continue to minimize its impact on the FX market’s pricing process. The NBU will favor the forms of interventions under which the NBU does not offer but rather accepts the price offered by other FX market traders. Such FX interventions, where the NBU plays the role of a price taker, include the FX auction and the best-rate intervention. This approach is in line with the updated Foreign Exchange Intervention Strategy of the National Bank of Ukraine for 2016-2020.
Setting the quantitative indicators for daily interventions is an important part of the floating exchange rate regime. This regime does not require the NBU to maintain a specific exchange rate, and the NBU’s presence on the FX market may be caused by the need to accumulate international reserves, smooth out the FX market operations, and support the transmission of the key policy rate.