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Concorde Capital Research: Ukraine central bank takes extra foreign currency liberalization steps

May 25, 2016 | Cbonds

The National Bank of Ukraine (NBU) announced on May 24 that it took the latest step in its so-called debureaucratization process of its foreign currency operations. In particular, the NBU eased the procedures for returning foreign investments by cancelling the requirement to prove that the investments indeed occurred. Also, the NBU abolished a set of technical requirements for obtaining permission for foreign currency operations.

Serhiy Parkhomenko, the head of the open market department at the NBU, mentioned that the bank plans to reduce this week the number of days needed for verifying foreign currency purchase requests (currently the t+2 rule is in force), reported the news site the same day. He also said the NBU will also consider in June reducing the percentage of the obligatory sale requirement of export proceeds, which is currently 75%.

Alexander Paraschiy: The current positive tendencies at the ForEx – with the NBU still purchasing substantial sums of foreign currency (USD 258.1 mln from the start of the month) – are encouraging the regulator to take further liberalization steps. The minor debureaucratization steps so far touched only a very narrow segment of players. However, if the NBU indeed lowers the percentage of the obligatory foreign currency sale requirement, as well as narrows the number of days needed for verification, it will be a very strong signal for the market that the economic situation is improving, which will add confidence to the national currency. Still in light of weakening resource prices at the global market and in view of the fast revival of non-energy imports currently occurring, we can hardly expect stronger liberalization moves since we expect some depreciation pressure to return to the market in the nearest future.

Ukraine raises UAH 9.2 bln from bond placements at falling rates
Ukraine’s Finance Ministry raised UAH 2.4 bln from the placement of two-year local bonds at a YTM of 17.3% on May 24. The yield was significantly lower than for the bond of about the same maturity placed on May 10 (17.9%) and April 19 (19.7%). On top of that, MinFin raised USD 271 mln from the placement of local USD-denominated bonds maturing in 1.5 years at a YTM of 7.52%. Its total proceeds from bond sales on May 24 amounted to UAH 9.2 bln.

Alexander Paraschiy: A visible decline in the yields of government bonds at their placements has been happening since early May after the central bank reduced its key rate to 19% from 22% on April 22, which resulted in a respective decrease in interest rates for two-week certificates of deposits. Yesterday’s placement of the UAH-denominated bond indicates MinFin is willing to continue lowering interest rates further. And the success of the two-year bond placement may indicate the market is ready to accept lower rates, possibly because some of the participants are expecting that the central bank’s board will lower its key rate again during its May 26 meeting. Alternatively, it could have been the state banks that purchased bonds at lower rates yesterday as employing state banks to lower rates was standard practice used by the government earlier.

Company: Ukraine

Full company nameUkraine
Country of riskUkraine


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