President OKs Law Extending Powers Of NBU

KIEV, Ukraine -- President Viktor Yanukovych on Thursday signed a bill into law that gives extra powers to the National Bank of Ukraine to prop up the hryvnia in the event of any financial emergency.

National Bank of Ukraine (NBU)

The legislation, which was approved by Parliament last week, allows the NBU to unilaterally introduce mandatory selling of hard currency earnings by exporters for a period of up to six months.

It also gives the NBU the authority to temporarily change the time needed for making settlements to close export or import contracts, which may potentially regulate the supply of hard currency on the forex market.

The legislation comes amid concerns that the hryvnia has been facing a new wave of downward pressure against the U.S. dollar, caused by skyrocketing natural gas bills and weak foreign direct investments in Ukraine.

The combination of these factors have increased demand for dollars on the one hand and reduced supply of hard currency on the other hand, triggering the hryvnia’s sudden fall on Tuesday to the lowest level in three years.

The hryvnia recovered some value on Thursday closing at 8.24 to the dollar in trading between commercial banks, compared with 8.26/dollar on Wednesday and 8.30/dollar on Tuesday.

The NBU has a key role in helping the hryvnia’s recovery on Wednesday by openly declaring it will tap forex reserves and sell dollars at below market rates - at 8.05/dollar.

On Thursday, however, the NBU changed tactics and did not officially participate in the trading, while instead the state-owned savings bank Oshchadbnk has been selling dollars at 8.25/dollar.

Oshchadbank has earlier repeatedly sold dollars for the NBU, when the central bank hasn’t felt comfortable in going to the market.

In this case, the NBU would tap the reserves and transfer the dollars to Oshchadbank, which would simply sell them on the market.

Olena Shcherbakova, the head of the main monetary and credit policy department at the NBU, said on Thursday the NBU will make a separate announcement on when the bank will use the new powers to back the local currency.

“We are currently watching the market,” Shcherbakova said at a press conference.

“It’s a subject of a separate meeting” to announce the measures mandating the exporters to sell a half of their hard currency earning on the forex market.

The measures are considered to be effective and helped to stabilize the hryvnia after financial meltdowns in 1990s.

Shcherbakove dismissed criticism of the legislation as an administrative pressure on businesses by saying that exporters eventually anyway sell 75% of their hard currency earning on the foreign market.

“But it happens not evenly,” she said.

Ukrainian exporters, such as steel and chemical companies, keep an estimated $8.5 billion denominated in hard currencies.

The money is kept in foreign banks at corresponding accounts of Ukrainian banks, she said.

Source: Ukrainian Journal