The Board of the National Bank of Ukraine (NBU) has approved the Foreign Exchange Intervention Strategy of the National Bank of Ukraine for 2016–2020, which defines the interbank FX market policy of the central bank under the regime of inflation targeting and flexible exchange rate.
“The NBU’s foreign exchange interventions come as an addition to inflation targeting, as their mid-term objective is to support the price stability goal of the NBU,” emphasized Serhii Ponomarenko, Director of the Open Market Operations Department.
First, the FX interventions act to support the main monetary policy instrument – the key policy rate.
Second, the NBU does not counteract fundamental FX market trends that are driven by market factors. It only cushions their temporary effects on the market. “In other words, the NBU’s interventions may change the range and speed of exchange rate movements but do not change their direction,” said Serhii Ponomarenko.
According to the said strategy, the NBU may conduct foreign exchange interventions to pursue three goals, namely:
- smoothing out fluctuations in the FX market
- accumulating international reserves
- supporting the transmission of the key policy rate as the main monetary policy instrument.
At the same time, if price stability and accumulation of international reserves are incompatible goals, price stability takes precedence.
The NBU may conduct foreign exchange interventions in the following four forms:
- FX auction
- single-rate intervention
- best-rate request
- targeted intervention.
The NBU intends to minimize its activities in the FX market once the international reserves reach the target level. Furthermore, the scope and frequency of FX interventions will be reduced as financial markets develop and the government liberalizes currency laws.
For reference
Please find the Foreign Exchange Intervention Strategy of the National Bank of Ukraine for 2016–2020 in the Publications subsection of the Monetary Policy section at the official website of the NBU.