For-UA Ukraine English News

Alternative Review – Comments and discussion on For-Ua News (Ukraine English News)

National Bank demonstrates resolve to keep hryvnia stable

Posted by the Editor on February 7, 2014

News / 7 February 2014 | 18:15

National Bank demonstrates resolve to keep hryvnia stable

National Bank demonstrates resolve to keep hryvnia stable

During the last few months the Ukrainian economy was under a strong pressure caused by an ongoing political crisis. However, all that time the National Bank managed to keep the stability of the hryvnia in check. In fact, business and public displayed confidence in the stability of 
This is corroborated by the NBU statistics of the hryvnia deposit dynamics in the banking system. At the beginning of 2014 the balances of businesses and individuals in the hryvnia accounts were 420.9 billion UAH, up 101.0 billion UAH. At the same time, the foreign currency account balances fell from 248.1 billion UAH to 245.2 billion UAH 
Experts say, of special significance is the public behavior. In 2013, individuals increased the balances on their hryvnia current and deposit accounts by 69.8 billion UAH, from 183.8 billion UAH (as of 1.01.2013) to 253.6 billion UAH (as of 01.01.2014). 
Since early October 2013, when the political situation in the country started to aggravate, and through the end of 2013, the population has continued to increase the balances on their hryvnia deposits. Their 
growth was 15.1 billion UAH. At the same time the foreign currency deposit balance fell by 3 billion UAH over the same period, from 186.6 billion UAH to 183.6 billion UAH. These data is a strong argument in 
terms of absence of negative expectations towards hryvnia from both business and population. At the same time the NBU and the government managed to keep the foreign exchange reserves at an 
adequate level. In 2013 they fell by only 3.6 billion USD, to 20.4 billion USD, although payments to the IMF last year alone amounted to 5.6 billion USD. 
However, a sharp destabilization of the political situation in the second half of January 2014 challenged the hryvnia stability prospects. This caused a sharp increase in demand for foreign currency. 
During January 2014, the NBU was forced to increase its presence on the interbank foreign exchange market, by using its existing mechanisms and instruments of monetary stabilization. In fact, its foreign exchange intervention amounted to 1.7 billion USD. 
In this regard, experts say that expectations are extremely important for determining the behavior of businesses and ordinary citizens. Even if there is no fundamental economic reasons for concern, 
but politicians or speculators encourage negative expectations, so the economic situation may begin deteriorating: the consumer demand falls, investments dry out, distrust in the stability of national 
At the same time, even if there are foreign trade and domestic economic factors that create difficulties for the economy, but the society believes in the ability of the government and the central bank to ensure 
a long-term stability of the national currency, the positive expectations push up the economy. Based on the understanding of this important factor that drives economic development, banking analysts comment on the NBU’s decree dated Feb. 6, 2014. 
Analysts say the National Bank demonstrates to business entities, banks, and public its resolve, on the one hand, to provide adequate liquidity to banks, so they can timely and fully meet their obligations. 
On the other hand, they can use all available market and administrative controls to prevent intentional rocking of the national currency valuation. 
So, pursuant to the decree, enterprises can’t move or withdraw money from the account in the amount that would exceed the morning balance in the account. That is, if at the opening of business, the 
enterprise has 100,000 UAH in the account, it can’t pay out more than that, even if it received 500,000 UAH on that particular day. 
Experts of the Independent Association of Ukrainian banks note that this is a standard practice adopted in most developed countries. For example, there is a similar mode for using account balances in England and the United States. 
Analysts agree that this restriction adopted by the National Bank creates some temporary difficulties for business. But in the conditions of currency market destabilization and possible deterioration of the banking system caused by panic from both business and population, this solution may help stabilize the situation. Those who have used banking system to put cash through dozens accounts within a day, no longer can do so. This would significantly reduce opportunities for currency speculation. Analysts say certain currency purchase restrictions will help reduce pressure on the hryvnia. National Bank experts say that regulatory decisions are aimed to tighten control over the timely 
payments of wages, pensions, scholarships and social allowances. However, no restrictions are introduced for payments for study or treatment abroad; transporting patients; transfers associated with immigration; cash transfers for remuneration of non-residents. 
Banking market experts believe that the decisive actions of the National Bank will help to change the foreign exchange market trends. The negative expectations and panic demand for foreign currency in the 
coming days will result in increasing sales of foreign currency by business entities and public, which will lead to strengthening of the hryvnia. 
In this regard, experts note that on Feb. 7 the National Bank was not making interventions, but just the opposite, buying up foreign currency at the rate of 8.55 UAH for 1 USD.



Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: