National Bank of Ukraine limits access to ForEx market

Макроэкономика 07.02.2014 The National Bank of Ukraine (NBU) approved on Feb. 6 a resolution that aims to stabilize the ForEx market. In particular, the resolution requires strengthening liquidity support to banks, a zero reserve rate on short-term foreign loans, restrictions on funds’ use by banking clients, temporary limits on foreign currency purchases at the ForEx for certain transactions, and limits on foreign currency purchases for legal entities and private entrepreneurs. The resolution takes effect Feb. 7. Alexander Paraschiy: The situation on the ForEx market has been rough in recent weeks. Daily foreign currency turnover on some days exceeded USD 5 bln, while average turnover in 2013 was USD 1.2 bln per day. On Feb. 5, the hryvnia broke the UAH 9.0/USD ceiling, a new psychological level that considerably increases the risks of a bank run and speculative attacks. Thus it came as no surprise to see the NBU impose its limits. Still we do not think that will be the end of the story. Fundamentals are weak and everything depends on political developments and on negations with Russia on macro-support. If Russia agrees to provide its latest USD 2 bln traunche to Ukraine soon enough, that will ease tension at the ForEx. Unless the political crisis is resolved soon, the demand for foreign currency will remain high throughout the upcoming months.