In Q2–Q3 2019, the National Bank of Ukraine (NBU) intends to purchase up to USD 20 million a day to build up international reserves. This amount is USD 5 million more than the quantitative indicator applied since February 2019.
The NBU estimates that the daily purchase of up to USD 20 million will have no significant impact on the interbank market.
Since the beginning of the year, the interbank FX market total volume grew almost by 40% following the currency liberalization and lifting the number of business restrictions. In addition, that allowed the NBU to expand the currency purchase volume while escaping significant impact on the hryvnia exchange rate, which is determined by the fundamental economic factors.
In January –April 2019, the NBU’s net FX purchases in the interbank market totaled USD 900 million. Simultaneously, since the beginning of the year, the official exchange rate strengthen by 4%. While conducting such interventions, the NBU complied with the Foreign Exchange Intervention Strategy for 2016-2020, in particular, by avoiding interfering with the essential hryvnia exchange rate tendencies. The NBU did not purchase currency during hryvnia depreciations replenishing international reserves of Ukraine only during favorable FX market conditions when the market supply exceled the market demand.
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 planned volumes of interventions are of indicative nature. 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 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.