The NBU intends to buy up to USD 20 million per day in the interbank FX market by the end of Q3 2020 to increase international reserves, if FX market conditions allow. This is a decrease from the previous guidance of USD 50 million in per-day FX purchases, which has been in effect since late 2019.
The revision of the FX purchase guidance comes as client transactions in the Ukrainian interbank FX market have declined in amount after the coronavirus pandemic depressed global trade and investment. Ukrainian exporters, however, continue to sell sufficient amounts of foreign currency to meet demand from businesses and households. FX supply in April has mainly surpassed demand in both the cashless and cash segments of the market, enabling the NBU to replenish international reserves by purchasing the excess supply of foreign currency on certain days.
"FX market conditions are back to normal following several weeks of panic demand that was triggered halfway into March by headlines about the coronavirus and quarantine. The supply of foreign currency from businesses and households has exceeded demand since early April. The market has been able to clear – most of the time – but on the few days that certain amounts of foreign currency fell short of finding a buyer, the NBU intervened to purchase. Since early April, the NBU has purchased a total USD 600 million in excess foreign currency, adding it to international reserves," says NBU Deputy Governor Oleg Churiy.
The guidance to purchase USD 20 million accounts for less than 5% of the average daily transaction volume of the interbank FX market, and will not get in the way of how supply and demand set the exchange rate.
Apart from the plans to buy foreign currency, the central bank may intervene to sell it whenever demand outweighs supply. As before, the NBU will only act to smooth out excessive exchange-rate fluctuations, and has no intention of fixing the exchange rate at any particular level. Supply and demand from all market participants will continue to be what determine the exchange rate.
The planned amounts of interventions are exclusively of indicative nature. Depending on the market conditions, FX purchasing interventions may be less in amount or not take place at all. Daily purchases may exceed the announced amount. However, such interventions will be conducted for other purposes set out in the Foreign Exchange Intervention Strategy of the National Bank of Ukraine for 2016–2020, particularly to smooth out strong fluctuations on the FX market.
Setting quantitative indicators for daily interventions is an important element of the floating exchange rate regime. This regime does not require the NBU to maintain a specific exchange rate. The central bank’s presence on the FX market aims at accumulating international reserves, balancing the FX market, and supporting transmission of the key policy rate.