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Ukraine's central bank to switch to closed-circle forex interventions
October 17, 2016 / 3:17 PM / a year ago

Ukraine's central bank to switch to closed-circle forex interventions

KIEV, Oct 17 (Reuters) - Ukraine’s central bank will in future sell dollars directly to a limited circle of banks rather than at open auctions, an official said on Monday, in a bid to combat speculative trades against the under-pressure hryvnia more effectively.

The central bank has traditionally defended the hryvnia by offering foreign currency at auctions that are announced in advance and open to all lenders.

The local currency has slipped to 25 against the dollar from 8 since 2014, battered by two years of economic crisis and conflict with Russian-backed separatists in the country’s east, and inflation jumped to 20-year high in 2015.

“We plan to launch a faster and more secret tool to respond problems, speculative attacks on the hryvnia”, Serhii Ponomarenko, director of the central bank’s open market operations department, told journalists.

He said it took hours to announce and conduct an auction while direct intervention could be done in minutes.

“There will not be any announcement in advance. We will simply submit our request directly to 15-20 banks (the biggest market players) asking them about their quotes ... and then - we will get a deal at the best price,” he said.

He said such hidden interventions would help make better use of Ukraine’s foreign reserves.

The central bank was forced to abandon its fixed exchange rate policy at the start of 2015 when its international reserves fell to $5.6 billion, barely covering one month of imports.

Reserves had increased to $15.6 billion as of Oct. 1 mainly due to International Monetary Fund loans. Kiev has received $7.7 billion of $17.5 billion that the Fund has promised to disburse in support of economic reforms.

Corruption remains the main obstacle to the foreign currency inflow Ukraine needs to cover its current account deficit, pay debts and boost international reserves.

Reporting by Natalia Zinets; editing by John Stonestreet

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