The National Bank of Ukraine (the NBU) has resumed active work to improve the indicators (benchmarks) of the money and FX markets. This work was suspended at the outbreak of the full-scale war, as the NBU’s resources were repurposed to resolve more pressing problems.
The Money and Foreign Exchange Market Indicators Oversight Council (the Oversight Council), which replaced the eponymous committee, held its first meeting on 28 February. This advisory body consists of both NBU staff and external members.
At its meeting, the Oversight Council carried out the first periodic review of the UONIA money market indicator and FX market indicators (the official hryvnia exchange rate to foreign currencies, the accounting price of investment metals, and the reference value of the hryvnia exchange rate to the U.S. dollar).
This biannual review is aimed at determining whether or not there have been any structural changes in the market and/or other grounds that may indicate the need to replace the existing indicators, adjust their methodology, or address other important aspects of their calculation and publication.
Here are the key conclusions based on the review findings.
The narrowness of the money market significantly affects the quality of the UONIA indicator. Given the current and forecast market conditions, it is unlikely that the impact of this factor on the quality of the indicator will be overcome.
That said, the UONIA indicator is believed to be conceptually superior to the UIRD, as it is calculated on the basis of actual transactions. But its main drawback is that Ukraine’s interbank money market is currently extremely narrow and has no prospects for revival in the foreseeable future.
A reliable and practical money market indicator can be created by expanding the base of transactions included in the calculation of the indicator, and/or developing mechanisms for banks to be more active in the money market.
Ukraine’s FX market indicators and the methodology for calculating them currently meet the market’s conditions and needs. At the same time, it is advisable to supplement them with the calculation of the reference value of the hryvnia’s exchange rate to the euro as of 12 noon.
In addition, it is advisable to move to a single (daily) list of currencies for setting the official hryvnia exchange rate, and to stop sending information about the official exchange rate to subscribers of the NBU e-mail system.
Based on the findings, the relevant NBU structural units will prepare proposals to improve the money and forex exchange markets indicators, which will be considered by the Oversight Council. The next periodic review of money and FX market indicators is tentatively scheduled to be conducted in August this year.
Information messages about the results of the periodic review of the money and forex exchange markets indicators are available at the following links: