The National Bank of Ukraine has already punished those who caused feverish currency fluctuations, reported the web portal censor.net citing the source. According to the information provided, the NBU had allegedly expelled five Ukrainian banks from interbank currency operations – for, as the NBU believes, “artificially heating up exchange rates on the interbank currency exchange on September 4-5.” The names of the banks were not mentioned, just as the term of penalty.
The Day addressed the Ukrainian Banking Association for confirmation or denial, only to get a polite refusal, since the Association did not dispose of any such information. However, they remarked that such scenario was quite probable, and the five banks could have very well been used as scapegoats (more detail below, in the commentary by Oleksandr Suhoniako, the president of the Ukrainian Banking Association, to The Day). The UBA suggested instead bringing a claim against the National Bank itself, at least to demand an explanation for failing to offer dollars early last week. As a result, FOREX CLUB analysts say, the dollar exchange rate jumped up by 2 percent. Consequently, most commercial banks had to raise dollar exchange rate in the indefinite market conditions.
FOREX CLUB experts believe that jump to be primarily caused by the NBU having provided commercial banks with loans to keep up their liquidity. However, certain banks canalized these resources to buy currency. This suggests another question to the nation’s main bank. Why pass the decision to “flush” nearly four billion hryvnias on the market while, in the current macro- and microeconomic situation, this money obviously could not be spent for loans?
Certain experts are inclined to think that this dive, in fact, was man-made and well-orchestrated. The National Bank consciously agreed to a four-billion emission, although it knew what such a step implied for the market. This opinion is shared, in particular, by Oleh Soskin, president of the Institute for Social Transformation. Soskin is convinced that it is due to their reluctance to support the “devaluation plan” that two top NBU managers were fired in late August. Both were from the former NBU president Volodymyr Stelmach’s team: Ihor Shumylo, director of the General Economic Department, and Oleksii Berezhny, director of the Financial Monitoring Department. They allegedly openly disagreed with the top leadership’s plans. Meanwhile, The Day’s reliable government source informs that Shumylo has paid with his post for his refusal to support the leadership in the revision of 2012 macroeconomic figures. The Day’s source explained that two weeks ago a conflict arose at the Cabinet meeting during a discussion of macro forecasts, whereupon the National Bank supported very pessimistic macro forecasts for 2013. “This stand, expounded in a letter signed by the NBU’s director of the General Economic Department Ihor Shumylo, came as an absolute surprise, which most likely caused Shumylo’s resignation,” noted the source.
According to FOREX CLUB experts in Ukraine, this week the pressure on the hryvnia may somewhat ease. The liquidity of the Ukrainian banking system has dropped from its maximums, whereas the international situation has more or less settled, following the European Central Bank’s decision to increase incentives, with a prospect of the Federal Reserve System’s possible hint at the third qualitative easing in the US on September 13. So this week cash dollars in Ukraine will be sold somewhere between UAH 8.145 and 8.172 on average, say the experts.
As this article was being put to bed, at a currency exchange office next to The Day’s quarters the dollar was bought for UAH 8.12, and sold for UAH 8.21. We asked experts if the market could be considered stabilized with such a corridor. What caused last week’s panic across currency exchange offices, and can the same scenario repeat itself soon?
Oleksandr SUHONIAKO, president, Ukrainian Banking Association:
“The government could have been able to prevent what happened last week in Ukraine’s exchange offices. This only required a very slow and gradual increasing of the system’s liquidity, rather than gushing billions of hryvnias, from 16 up to 26. They could not have possibly been unaware of the fact that such a dramatic jump of liquidity would cause all this additional money to pour into the currency market. There is no other vent for it. There is no point in looking for the culprit outside the circle of people, responsible for the decision to increase liquidity. What did they expect as they agreed to such a step? That the banks would use this money for loans? In July, even short-term loans dropped, let alone long-term ones.
“As for the information about the five allegedly punished Ukrainian banks, which artificially warmed up the exchange rate, I find such a scenario quite realistic. There absolutely has to be someone to blame. Someone has to be punished. So they found these banks – although the latter hardly had another option but resorting to the currency market. When they got money at an annual interest rate of 7.4 percent, what else were they to do? They had to put them into operation.
“Today the situation in the banking market is bad both for the credit portfolio and for profits. Only six or seven banks secured this two-billion’s profit. The rest are keeping their balance around zero.
“When the banks got hold of the resource, they wanted to profit from it. This is all there is to it. Another question is, why the demand for foreign currency is so high, and why we are having this problem with the balance of payments. But it is not the banks that such questions should be directed at.”
Viktor SUSLOV, Ukraine’s former economy minister:
“Besides economic leverage, today the National Bank is also using quite hard administrative measures to restrain exchange rates. This will probably prove efficient for some time to come. Yet it is necessary to understand that devaluation is overdue, the devaluation expectations are rather big, the trade balance is negative (seven billion dollars in the red is quite a sum), the balance of payments can be only kept at bay at the expense of foreign loans with outrageous interest rates (suffice it to recall how the government borrowed 2 billion dollars this July through government bonds, at 9.25 percent annual interest rate). Under these conditions devaluation pressure is objectively very high, and it must have its effect.
“Moreover, the devaluation of the hryvnia would do us good. It would help revive the economy. Devaluation is a classic trick to restrict imports and stimulate exports. Any country with a negative trade balance for a long time employs such methods. Both the Russian ruble and the euro have been seriously devalued over the past few months. Besides, the IMF is also advising that Ukraine devalue its currency.
“However, this is not happening, and only because the real economic policy and the National Bank itself have become hostage to big politics (in particular, the election campaign). First of all, it is due to the power party’s (the Party of Regions) thesis to the effect that stability has been achieved. To prove the slogan, carried by innumerable billboards across the country, they must keep currency exchange rate at bay, at least until the polling day.
“I believe that the government will succeed in keeping a stable rate till the election, no matter how risky this project is, given the objective economic situation.
“Yet the longer the restrain, the steeper the devaluation that follows. You cannot always act against the laws of economics. It will cost too much.”
Anton FILIPENKO, president, Ukrainian Association of International Economists:
“The surges of hryvnia exchange rate are due to the completion of the country’s political cycle. They are logical developments. Every time the political cycle is complete, national currency is sent into feverish fluctuations.
“The developments on today’s Ukrainian political arena cannot but influence the behavior of investors, markets, and the national currency. Of course, this is qualitative analysis. Yet I am convinced that quantitative analysis (should we calculate monetary aggregates M1, M2, etc.), too, will prove it. Besides, there is another very important factor: the drop of economic growth. This year’s budget, laid out with the growth expectation of 3.8 percent, and actually executed on the level of mere 2 percent, is not a factor to be slighted for the stability of the national currency. It is certainly reflected on the demand of money supply in operation.
“As far as the situation with the new loop of the political cycle goes, I think that the differences in the budget process will create a difficulty in the currency market, since it may provoke an additional considerable emission of money, which will affect the devaluation of Ukraine’s currency.
“There have long been talks to the effect that the hryvnia should be ‘released,’ and I support this. In fact, it is virtually working as a ‘currency council.’ The hryvnia is de facto pegged to the US dollar (while de jure it is not). This moment, too, will have a future negative effect on the stability of our national currency.”
