On 29 August, the Oversight Council for Ukrainian Money Market and FX Market Indicators (hereinafter referred to as the “Oversight Council”) conducted this year’s second periodic review of the money market indicator UONIA and FX market indicators (the official hryvnia exchange rate against foreign currencies, accounting prices for investment metals, and the reference UAH/USD exchange rate).
This twice-a-year review is aimed at detecting any structural changes in the market and/or other grounds that may indicate a need to replace existing indicators, adjust their methodology, or address other important aspects of their calculation and publication.
Key takeaways from the review’s findings:
Although the current methodology for calculating UONIA is not perfect, it retains its capacity to serve as an objective indicator of the money market. However, there is a need to seek options to improve UONIA’s calculation methodology.
Specifically, it is recommended that, with international technical assistance, NBU structural units continue to explore issues such as expanding the transactions base that goes into the indicator’s calculation and/or to develop mechanisms for the banks’ more active involvement in the money market.
The official/reference UAH/USD exchange rate and its calculation methodology currently meet the market’s conditions and needs. The FX market’s trading volume is fairly sufficient to calculate reliable indicators based on the UAH/USD exchange rate. The currency makeup of FX market transactions confirms the status of the U.S. dollar as the main exchange-rate-shaping currency.
The Oversight Council also agreed upon approaches to introducing a new FX market benchmark – the reference UAH/EUR exchange rate as of 12 p.m. It was developed at market participants’ request, in cooperation with an international technical assistance expert. It is recommended that this benchmark be calculated by multiplying the UAH/USD reference rate by the average BFIX USD/EUR quotation calculated between 10:30 a.m. and 12 p.m.
In addition, it is deemed viable to change the methodology for calculating the hryvnia’s official exchange rate against foreign currencies (except for the U.S. dollar), and the accounting prices of investment metals, by taking the approaches that are similar to how the reference UAH/EUR rate as of 12 p.m. is calculated.
Oversight Council members also reached common ground on the viability of taking new approaches to compiling the list of currencies for which the official exchange rate is set daily, and on the feasibility of canceling the monthly-rate-setting list.
Said proposals will be subjected to public discussion and then considered by the NBU Board.
Notifications on the results of periodic reviews of money market and FX market indicators are available here:
The Oversight Council was launched on 18 August 2023. This collective decision-making body includes NBU employees, as well as external members recommended by the Money and Foreign Exchange Markets Contact Group.
The Oversight Council is tasked with working out and discussing the issues related to the definition, calculation, and publication of money market and FX market indicators. Such issues include:
- assessment of representation performance of money market and FX market indicators
- definition and adjustment of the methodology behind money market and FX market indicators
- oversight of the internal control system
- error-handling policy
- review of audit results
- prevention of conflicts of interest
- consideration of claims
- data quality control supervision
- compliance of money market and FX market indicators with IOSCO principles.
The Oversight Council is an advisory body. Any and all decisions regarding money market and FX market indicators are made by the NBU Board