Does the National Bank keep silent or idle?

The exchange rate for actual transactions at the Interbank currency market last Wednesday exceeded the upper limit of the currency corridor announced February 9 (UAH3.4/$1 - UAH4.6/$1). As early as by 11.30 the quoted rate had reached the point of UAH4.67-4.75/$1, while actual deals were made at the rate of over UAH4.7/$1.

Bankers think the new devaluation of the hryvnia is connected with the disappointment of some market participants who expected the exchange rate to stabilize but failed to see hard currency sold by exporters. Negative expectations are still being kept alive by the National Bank (NBU) which does not comment at all on the market situation, Interfax-Ukraine reports.

“The NBU does not take any steps. Suffice it to take at least one step, i.e., to intervene, and it will convince the market that the hryvnia will not roll down further on,” Metallurg bank dealer Oleksandr Lohvynenko told Ukrainski novyny.

“If the NBU does not sell [hard currency], I am prepared to see the dollar going above the corridor,” Ukrsibbank senior dealer Dmytro Fedotov said.

According to hard-currency dealer of the Nadra bank Yaroslav Tsebro, quotations will hardly have exceeded the level of UAH4.8/$1 by the end of the day, “but if the official exchange rate drops again tomorrow, the speed of the Interbank rate devaluation will be similar to today's.”

The hryvnia crisis is also being further exacerbated by the IMF postponing a decision to issue a new EFF installment to Ukraine.

The absence of international financial assistance (a Cabinet of Ministers source told Interfax-Ukraine that foreign funding was — UAH191 million) is widening a hole in the Ukrainian budget, forcing the government to resort to a hidden emission of the hryvnia.

The Cabinet of Ministers has increased the issue of 1999 government treasury bills from UAH2.988 billion to UAH3.688 billion. The main buyer of the bills is, naturally, the National Bank, which thus credits the government at a price unfavorable for itself and the people, for it is below the market value, as Interfax-Ukraine reports. Since the beginning of the year a nominal UAH3.360-billion-worth of treasury bills have been allocated for UAH2.749 billion. This could be put up with if in this case the National Bank derived an income or at least returned its costs. But, as long as NBU treasury bill incomes are not being made pubic, there is every ground to speak about a well-hidden or so-called “velvet” emission. Obviously, the NBU cannot afford to maintain a stable hryvnia in these conditions, for its hard-currency reserves make up, according to foreign sources, $1.3 billion.

The NBU press service, which has always considered it of paramount importance to defend the stability of the national currency, does not comment on the currency market developments. Hard currency department director Serhiy Yaremenko advised The Day to turn to his bosses to clear up what is going on. Emission and credit department director Natalia Hrebennyk got off with a statement more typical of the recent past: “The National Bank pursues a monetary policy that lays the groundwork for a stable national currency. I would not say we stand idle.”

Only Viktor Lysytsky, advisor to the NBU chairman, could say something intelligible: “Those people and forces that continue to devalue the hryvnia are seeking access to National Bank hard currency reserves. Shall we meet them halfway? Never! Now we are holding working meetings with large economic entities. But I cannot say we will begin to intervene tomorrow. Anyway, interventions will not reverse the on-going process of devaluation. And should they?”

So the National Bank has bowed down to the government which, on the one hand, alleges it opposes money emission to pay off social payment arrears and, on the other hand, speaks about the possibility of “contributing” additional money to the economy (Valery Pustovoitenko is quoted by Interfax-Ukraine as saying) “if the inflation index is below the projected one.”

In the meantime, according to the State Statistics Committee, July saw a -1% deflation, rather than inflation. This data can easily be denied by the prices for gasoline, sugar, flour, cereals, transport services, etc. But the green light has apparently been given to emission followed by inflation and devaluation. The National Bank has been placed, even though temporarily, out of the game. The people can only rely now on the elections: the authorities will be acting carefully until election day, not to undermine completely their image spoiled by the latest crises on the sugar, bread and oil markets. After the elections, provided Ukraine makes the right choice, the hryvnia will again have true protectors.