National Bank of Ukraine relaxes currency regime

Макроэкономика 31.03.2014 The National Bank of Ukraine (NBU) on March 28 considerably relaxed the state’s foreign currency regime. The regulator allowed forward currency operations, allowed foreign currency purchase for external investments, reduced the number of days (two days vs. four days previously) needed for purchasing foreign currency for legal entities, and abolished the need to generate a register of foreign currency purchases. In addition, the NBU cancelled the need to show passports for individual foreign currency purchases. Residents are now allowed to cover debts in foreign currency to non-residents if they have a contract. At the same time, the NBU imposed new restrictions on individual ForEx transactions such as caps on foreign currency purchases (UAH 15K per day), which was active for many weeks in many banks, and for foreign currency wires abroad (equivalent of UAH 150K per day). Alexander Paraschiy: Relaxed foreign currency regulations are a very good signal that authorities see stabilization on the ForEx market and are confident about the hryvnia’s prospects, with the devaluation steam having been let off by 36.6% hryvnia depreciation vs. the U.S. dollar since the year’s start. Indeed, in March we observed a noticeable reduction in ForEx turnover to USD 0.8 bln per day vs. USD 1.4 bln per day in February. What’s more, progress in IMF negotiations and multi-billion dollar commitments from various countries also had a calming effect on the market. The only sad point is that the NBU still is delaying the introduction of a free float regime, instead opting to preserve its current laissez-faire policy. But as soon as the NBU commits to the IMF on inflation targeting, we believe the NBU will go further in ForEx market deregulation in the coming weeks.