The National Bank of Ukraine has extended the existing temporary FX restrictions In view of the risks to price and financial stability.
In particular, the NBU has kept in place surrender requirements at 65% for export proceeds; the 120-day rule for settlements for export/import of goods; a one-day provisioning period for banks to deposit funds in UAH required to purchase foreign currency from the interbank FX market; a ban on early repayment of FX loans to non-residents; cash FX purchases are limited to the equivalent of UAH 12,000 per day; and FX cash withdrawals from clients’ accounts are limited to the equivalent of from UAH 250,000 per day.
“To begin with, the NBU is faced by heightened risks on the path toward achieving the inflation targets in 2017,” said NBU Deputy Governor Oleg Churiy. “First, uncertainty has increased due to heightened political tensions. Second, there is a high probability that there will be further delays in disbursements of official financing due to the slow pace of implementation of program measures.
In addition, there are short-term systemic risks for financial stability arising from some large banks’ possible inability to implement re-capitalization programs, which were based on diagnostic studies.
Going forward, should the aforementioned risks subside and favorable prerequisites be in place in the money and FX markets and Ukraine’s economy as a whole, the NBU plans to gradually ease temporary FX restrictions set by this resolution. The NBU will remove FX restrictions in accordance with the Concept Paper on a New Foreign Exchange Regulation presented in early December and a roadmap for its implementation. It should be noted that the new FX regulation is not only more liberal compared with the current one but also it is in line with international practices - EU Council Directive 88/361/EEC on the Liberalization of Capital Movements and the EU-Ukraine Association Agreement.
However, the NBU has adopted a decision to issue NBU Board Resolution On Addressing the Situation in Ukraine’s Money and Foreign Exchange Markets with no expiration date so that market participants will not be misled by tentative timelines for the removal of FX restrictions”. This means that this resolution will remain in force until the last anti-crisis restriction is removed.
All the restrictions except for two will have no expiration date, with the maximum length of validity being limited by the Law of Ukraine On the National Bank of Ukraine and On the Procedure for Settlements in Foreign Currency. We are referring here to surrender requirements for export proceeds and settlement deadlines for export and import transactions. Accordingly, these two requirements will remain in force for six months until 15 June 2017 and might be either reviewed ahead of schedule or extended if necessary.
“The unlimited validity of this resolution does not mean that the NBU has given its plans to move ahead with FX liberalization. On the contrary, the NBU continues its path of FX liberalization. However, when deciding whether or not to ease certain restrictions, the NBU focuses on identifying whether the necessary prerequisites are in place for the removal of restrictions than the validity of the relevant resolution. This being said, the NBU has decided not to set concrete timelines for the removal of FX restrictions, which could provide misleading information to market participants,” explained Mr Churiy.
NBU Board Resolution No. 410, dated 13 December 2016, On Resolving the Situation in the Monetary and Foreign Exchange Markets of Ukraine has been issued to this effect. The resolution comes into effect from 16 December 2016.