In cooperation with the banks, the NBU on 21 October is introducing a new instrument that will enable households to protect their hryvnia savings from the risk of exchange rate fluctuations, and the NBU to preserve international reserves.
Individuals will be able to buy U.S. dollars at the NBU’s official exchange rate, make a term FX deposit with a bank, and withdraw the deposit by selling the dollars back to the bank for hryvnias (at the official rate on the day of withdrawal) after it matures.
There will be no limits on the number or size of such deposits per client. The deposit will carry an interest rate that will be set by the bank in line with its interest rate policy. Such deposits will come with maturities of at least six months and an extension option, but early withdrawal will not be possible.
By NBU estimates, such an instrument will give households an alternative to investing in FX cash. This will help reduce demand for FX cash, stabilize expectations, and ease exchange rate pressure in the cash segment of the FX market.
To offset their own currency risk, the banks will be able to buy an amount of U.S. dollars equal to the volume of such deposit transactions, at the official exchange rate, and can later deposit the purchased foreign currency into a separate account with the NBU. The banks will not be able to use this foreign currency for any purposes other than to resell it to the NBU at the current official exchange rate after such FX deposits mature.
To compensate the banks for the cost of making such transactions, the NBU will charge interest on the FX balance in the respective separate account with the NBU, to be paid in hryvnias.
The NBU expects that such an instrument will also tie up part of the banking system’s structural liquidity surplus, incentivizing the banks to compete for hryvnia deposits. This will in turn raise interest rates on these deposits and improve the monetary transmission mechanism. At the same time, the new instrument will not have an adverse impact on international reserves, as this product comes with the required resale of foreign currency.
The relevant amendments, and a number of other clarifying amendments, were approved by NBU Board Resolution No. 222 On Amendments to NBU Board Resolution No. 18 dated 24 February 2022 dated 20 October 2022, which takes effect on 21 October 2022.