Sell-out in Ukraine, political deals on financial markets

On Tuesday, Feb 24, the National Bank of Ukraine (NBU) issued a decree, restricting capital transactions from Feb 25 – 27. It says that banks are not allowed to buy foreign currencies for their clients. They may buy up to 0.5% of their regulatory capital and under the condition that they comply with regulatory standards (state controlled banks & PrivatBank). The order was issued late evening “so that creative Ukrainians did not have time to react”, as Valeria Gontareva, head of NBU explained.

The other day (Feb 25) the price of Ukrainian currency (UAH) crashed to USD/UAH 35 (black market). On Feb 20 it was traded at USD/UAH 28. Reports showed up saying that NBU did act without coordination with the government. Prime Minister Yatseniuk was quoted: “This morning I found out on the Internet that the central bank had independently and without consultation taken the decision to close the interbank market, which does not add to stability in the national currency.”

In the afternoon, Yatseniuk, Poroshenko and the Finance Minister met with Gontareva from NBU. Ukrainian media reported that “the Ukrainian President has issued an ultimatum to NBU head, requiring stabilizing the foreign exchange market.” The exchange rate should be stabilized at a level of USD/UAH 21.7, which close to the level the IMF is calculating with.

There were some other financial news on that day. NBU published on its website to have borrowed UAH 2.28 billion (USD 80 million) to PrivatBank in order to stabilize the financial system (decree No. 119, dated on Feb 19).

And Bloomberg reported that NBU bought USD 80 million on the market. “The purchases were done an average rate of 21.82 hryvnia [UAH] per dollar, Fyodor Bagnenko, a fixed-income trader at Dragon Capital in Kiev, said by e-mail, citing central bank data. The hryvnia closed at 33.5 per dollar on Tuesday.”

On social media people told that no UAH is available. Summarized on reddit: “They [people] say this a ‘barbaric method’ used by NBU to extort foreign currency from exporters, since now they have no way to exchange it in the free market to pay their hryvnia obligations. Also, the general consensus on this currency forum is that this is a plan to take away ‘dumb’ foreign currency from under people’s mattresses.”

At the end of this Wednesday, again late evening, NBU lifted restrictions from the day before. “Operations on behalf of clients allowed. Capital restrictions on own operations lifted. Going back to market rate tomorrow.”

I am not sure if this really is what it looks like. Ocean’s 13?! Comments welcome.

Nevertheless, it was the first day no troops were killed since the current truce.