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Automatically translated version. May contain inaccuracies compared to the original.
"RAGULYator" of the currency market
As one of the dealers said caustically, the National Bank has turned from a regulator of the currency market into a "ragulyator."
"No one knows what the rate will be tomorrow. How long will the National Bank keep spending reserves and how sharply will they let the hryvnia fall," a financier says.
It seems the officials themselves don't know either. The NBU has driven the situation to absurdity.
The regulator does not want to support the market with interventions so as not to let foreign exchange reserves fall below the critical mark of 20 billion dollars.
Nevertheless, it continues to act by administrative methods. In particular, the NBU tacitly forbids banks to sell currency through their own cash desks for more than 8,2 hryvnias per dollar.
As bankers told Ekonomichna Pravda confidentially, only exchange booths that deal with banks close to the "Family" can afford to "mark up" a higher rate. All other "speculators" risk being hit with an on-site inspection with hostility.
And in general, lately the NBU has returned to the idea of closing all autonomous exchange booths, so that cash currency would be sold only through bank branches.
Bankers grimly joke that the next step could be an introduction of a commission on currency exchange transactions, for example 10% of the conversion amount. It seems the only thing stopping the "ragulyator" from such a move is the risk of driving currency out of exchange booths into the spontaneous "black" market.
It's also interesting whether the NBU is still nursing plans for forced conversion of the population's foreign currency deposits, which Ekonomichna Pravda wrote about.
Thanks to the terror from National Bank officials, on Tuesday, 5 November, the cash dollar rate ended up below the non-cash rate. That is, banks were forced to sell currency below cost. If this doesn't change, the lion's share of cash dollars will flow out of banks to that same "black" market.
Meanwhile, on the non-cash market, a steady devaluation of the hryvnia continued. It happens in a "two steps up—one back—two steps up again" pattern.
In this simple way the NBU has already allowed the dollar rate to be "spun up" to 8,2 hryvnias and has done nothing to "play it back". Bankers believe this is far from the limit.
On 5 November on the interbank currency market, by the end of the trading session the rate shot up to 8,222 hryvnias per dollar. This is a record since the autumn of 2012.
According to one treasurer, the market was crashed by the state-owned Ukrgazbank, which was buying currency in the morning for Naftogaz. The national energy company must soon pay Gazprom 882 million dollars for gas delivered back in August.
On Tuesday the Minister of Energy and Coal Industry Eduard Stavytsky said that the national energy company has already begun transferring money to the Russian monopolist to repay the debt.
Gazprom representative Sergey Kupriyanov countered that "small payments are coming, but that's still tears: at this pace we're far from fully paying the debt." According to the Russians, from 30 October to 4 November Naftogaz transferred only 75 million dollars.
On Tuesday Naftogaz was buying currency on the interbank market, and when the rate began to collapse, the NBU sold it dollars directly from the reserves.
First Vice Prime Minister Serhiy Arbuzov and NBU head Ihor Sorkin (in the foreground). Photo kmu.gov.ua
In November part of the currency for the national energy company was bought by Ukrgazbank on the interbank market. "They went to the market on Monday and Tuesday and scooped up everything that was available," one treasurer says.
Many banks took advantage of the situation and began to push up quotes.
For comparison: on 4 November the total volume of dollar trading on the interbank market amounted to 862 million dollars. If Naftogaz had tried to buy all the currency it needed in one day, the market would simply have collapsed. Therefore, at the NBU's instruction Naftogaz buys dollars in small lots.
However, even such buying destabilized the market. The thing is neither the NBU nor the state banks extinguished the increased demand on the market as they used to do before.
On Tuesday there was a clarification. Ukrgazbank, after making noise on the interbank market, bought part of the currency from the NBU directly at a rate close to the official one. It is 7,99 hryvnias per dollar.
That is why the weighted average non-cash dollar rate according to the NBU on Tuesday was only 8,135 hryvnias per dollar. Although on the same day no ordinary person could buy American currency on the interbank market for less than 8,21 hryvnias per dollar.
Weighted average rate on the interbank currency market, hryvnias per 100 dollars
25.10.13
813,07
28.10.13
813,89
29.10.13
814,19
30.10.13
813,90
31.10.13
814,46
01.11.13
813,09
04.11.13
814,31
05.11.13
813,57
Source: NBU
Ukrgazbank's attempt to "stock up" on currency for Naftogaz without collapsing the market also failed because on Tuesday large lots were being bought on the interbank market by American Citibank and Russia's Alfa-Bank. Treasurers find it hard to say what accounts for the activity of these financial institutions, but they were buying not their usual tens of millions, but hundreds of millions of dollars.
Interestingly, literally on Monday, 4 November, on the eve of the hryvnia's fall to a new record, First Vice Prime Minister Serhiy Arbuzov, through media outlets under his control, tried to convince everyone that nothing threatens the stability of the hryvnia.
Photo from the newspaper Kapital
It seems this message was addressed primarily to bankers. Market participants, as soon as the interbank rate reached 8,21 hryvnias per dollar, practically wound down trading.
"Yesterday only negligible deals were made at the rate of 8,22," insists one of the dealers. According to him, that rate was posted only by Universal Bank and Odesa's Finbank, which belongs to businessman Borys Kaufman, close to the "Family."
A paradoxical situation arose in the cash market. According to Ukrdealing, on 5 November the minimum average selling rate of the non-cash dollar was 8,2068 hryvnias, while the average selling rate of cash "greenbacks" was 8,2021 hryvnias.
Thus it was unprofitable for banks to buy non-cash currency to sell it through their cash desks to the public. And the culprit here was not the "invisible hand of the market" but the "hand of the National Bank."
The regulator has been terrorizing its subordinates for about a month. It sends unscheduled inspections to banks that post rates above 8,2 hryvnias per dollar in branches.
"It's very strict now, inspections are happening both in Kyiv and in the regions," one banker says. But this unwritten rule does not apply to exchange booths that work with the "Family's" banks or have good cover through the Party of Regions.
Source: finance.ua
On Wednesday, 6 November, interbank quotes will be fully dependent on the behavior of the NBU and state banks. Will they sell Naftogaz currency from their reserves or again offer it to buy dollars on the open market?
"No one knows what the rate will be. No one wants to buy high and sell low," says one forex trader. On Tuesday and Monday many importers were left without currency, so deferred demand will only increase.
Upcoming external debt payments will inevitably put pressure on the rate. Besides the billion-dollar payments to Gazprom, Ukraine must pay 1,7 billion dollars to the IMF in November. Also in November the Ministry of Finance faces peak payments on previously sold foreign currency bonds. All these operations will inevitably affect the level of foreign exchange reserves.
Neither stories about a cloudless future for the hryvnia, nor the mandatory sale of 50% of all foreign currency inflows into the country, nor even forced conversion of foreign currency transfers helped stabilize the rate. The latter measure worked precisely the opposite. In the second quarter of 2013 the year guest workers even reduced remittances to the country by almost 20%.
Photo kmu.gov.ua
International analysts are increasingly skeptical that the current government will be able to secure new IMF loans. Rating agency Standard & Poor's forecasts further declines in the NBU's foreign exchange reserves and a "managed devaluation" in 2014 to 9,5 hryvnias per dollar. Their colleagues at Fitch are somewhat more modest in expectations: 8,5 hryvnias per dollar in 2014.
The only thing that could save the National Bank from a collapse in the rate is an IMF loan. This supposedly should happen after signing the association agreement with the EU. The Fund reportedly wants to provide money as a concession for allowing American Chevron to develop shale gas in Ukraine on terms unfavorable to the country.
The government prefers not to even think about what would happen if the signing of the agreement with the EU fails.
It seems the National Bank and its patron Serhiy Arbuzov have "played out".
Oleksiy Komakha, Ekonomichna Pravda
Document: PDF proof of the original version of the news item ""РАГУЛЯтор" валютного рынка". It records the publication content at the moment of the first scan, the preservation date and the source: ANTIKOR.
