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prospects

The second hard currency auction of the NBU will shortly satisfy the demand

The second hard currency auction of the NBU will shortly satisfy the demand
Photo: Ivan Chernichkin

During a meeting on Wednesday, the management of the largest financial structures and the National Bank of Ukraine agreed on holding of the second auction for the sale of foreign currency by the central bank. The following day the NBU announced the date of the auction is September 19. This time the minimum sum of bids was lowered from US $1 mn to US $500,000 and each bank was granted the right to submit an unlimited number of bids. Hard currency purchased on tenders can be used for a specified purpose over five days after it is received on the corresponding accounts of banks.

Too much hryvnia

The NBU expects that such auctions will reduce the banks’ demand for dollars and may strengthen the hryvnia. However, the experience of the first auction this year and also the first since 2010 held on September 8 shows that this is highly unlikely. At the first auction the NBU sold on auction US $93.89 mn at the exchange rate UAH 12.9/USD, which satisfied absolutely all bids submitted by 9 banks.

Be that as it may, this did not help the situation for long, though on the day the auction was held the hryvnia strengthened from 13.00 UAH/USD for purchase and UAH 13.20/USD for sale the day earlier to UAH 12.90‑12.98/ USD. However, later the national currency again began to devaluate. From that day the exchange fell by10% to UAH 14.10‑14.35/USD at the moment of closing of the interbank market yesterday.

The emission of money by the NBU that is not secured by the growth in the commodity base is an obstacle to favorable influence on auctions, says Senior Financial Analyst at the Expert-Rating association Vitaliy Shapran. According to data of the NBU, in January-August the monetary base grew by 11.2% or by UAH 34.2 bn to UAH 341.4 bn. “Given the 1.1% decline in real GDP in Q1 2014 and 4.6% in Q2, the monetary base should decrease rather than expand,” the expert says.

At that, the NBU came around just in time. In July the central bank began reducing the monetary base and continued this measure in August. In Shapran’s opinion, the preservation of this trend will help stabilize the exchange rate and return it to the level in July (at the start of the month the rate was UAH 11.85‑11.96 / USD).

In addition, by handing out hard currency from one hand through auctions, the NBU is basically taking it back with the other hand by purchasing it on the interbank exchange. In August the central bank purchased on the interbank exchange US $354.8 mn, while it only sold US $309.6 mn. In this way, the net purchase of foreign currency on the interbank exchange by the NBU amounted to US $45.2 mn. Such a situation has been observed for already the second month in a row. In June the central bank did not intervene on the market, while in July in limited itself to the purchase of US $80 mn. The NBU has its motives for this, namely to support the volume of international reserves, which since the start of this year fell by 22% to US $15.8 bn by the start of autumn.

At the same time, one of the requirements of the International Monetary Fund in effect this summer was guaranteeing the volume gold and hard currency reserves in the amount of US $19.2 bn to the end of 2014. During the IMF review of the cooperation program at the start of September the minimum level of reserves was lowered to US $16.2 bn. However, under the obligations, the NBU still needs to buy additional hard currency on the interbank exchange in September-December to the tune of US $800 mn.

Agreed rate

In light of the limited possibilities of influencing the hryvnia rate on the interbank exchange the NBU today is basically setting the rate on the cash currency market manually. On Wednesday during a meeting with the NBU representatives bankers agreed to orient themselves in the sale of foreign currency at the rate of UAH 13.10/USD, while earlier this rate was UAH 12.40/USD. The next day commercial banks fulfilled the agreement and lowered the corresponding exchange rate.

According to data of market players, the averaged cash rate in Kyiv on Thursday reached UAH 13.03/USD from UAH 12.63/USD the day before. Oschadny lowered its cash currency rate to UAH 13.00-13.30/USD from UAH 12.50-12.90 on Wednesday, Ukrsotsbank - to UAH 13.10/USD from UAH 12.50-12.90/USD and the daughter bank of Sberbank of Russia – to UAH 13.00-13.40/USD from UAH 12.50-12.90.

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