Hryvnia exchange rate against all currencies will be set daily, dollar reference rate to be supplemented by euro rate - NBU

MOSCOW. March 27 (Interfax) - Ukraine's currency market indicators and the methodology for calculating them correspond to market conditions and needs, but at the same time it , it is advisable to supplement them with the calculation of a reference value for the hryvnia rate against the euro exchange rate as of midday and move to a single, daily list of currencies to establish the hryvnia's official exchange, according to a recommendation by the Council for Oversight of Money and Currency Market Indicators.

"The National Bank's relevant divisions will draft proposals for the practical implementation of these initiatives," Ukrainian media quoted the NBU as saying on its website.

The NBU did not say when these recommendations would be put into practice. It did say the FX mix of deals on the Ukrainian currency market confirmed the dollar's status as the main currency when setting the exchange rate, but that the euro's share of share transactions by banks with clients had trending upward since before the crisis.

"In particular, in transactions for the purchase of non-cash currency by clients, the share of transactions in euros has approached 50%. The continuation of this trend, given Ukraine's European integration aspirations, may in the foreseeable future make it advisable to switch from the dollar to the euro as the main exchange rate currency peg. At this stage, as external members of the Oversight Council have said, market participants already need to calculate the reference value of the hryvnia against the euro exchange rate as of 12 noon," the National Bank said.

The Oversight Council also discussed the feasibility of the continued existence of two lists of currencies, daily and monthly, to set the hryvnia's official exchange rate. It was noted that due to the development of IT, operational restrictions on the daily calculation of official rates against a bigger list of currencies (if necessary) have disappeared. In addition, the existence of a list of currencies, the rate for which is set once a month, increases the risk of dual exchange rates, which could lead to violations of Ukraine's obligations to the IMF, the NBU said.

The Central Bank added that the practice of European countries shows that in the vast majority of them there is only one, daily basket of currencies for the official/reference rate.

The Oversight Council also took note of the IMF's introduction of a new policy to prevent the practice of dual exchange rates from February 2024. "In particular, this policy sometimes contains a warning about official/reference rates, the method for calculating which involves the cut-off of extreme values," the NBU said.

At the same time, the regulator said that as a result of the review, a reduction was noted compared with the pre-crisis period in the share of transactions in the primary sample for calculating the official and reference values of the hryvnia exchange rate against the dollar, which are dismissed as extreme in keeping with current methodology.

During the review, it was also noted that, despite a significant decrease in activity on the Ukrainian currency market during the crisis compared to before the crisis, the trading volume is quite sufficient to calculate reliable exchange rate indicators for the hryvnia against the dollar (reference and official rates) using the current methodology for defining them as a weighted average.

"At the same time, this activity is completely insufficient to consider in the foreseeable future a possible transition to calculating currency market indicators using the fixing methodology," the NBU said.

The Central Bank said the periodic review of currency market indicators was a special procedure, the purpose of which is to assess the presence of structural changes in the market and/or emergence of other grounds indicating the need to replace existing indicators, correct their methodology or other important aspects related to their calculation and publication. It is carried out by the Oversight Council and the first such review was carried out in February 2024. In the future, a review is planned every six months, no later than February and August, respectively.

Currently, the list of currencies against which the National Bank sets the hryvnia exchange rate on a daily basis contains 33 currencies, and the monthly list 24. The latter include the currencies of Algeria, Thailand, Brazil, Armenia, the United Arab Emirates, the Dominican Republic, Vietnam, Iraq, Iran, Georgia, Lebanon, Libya and Malaysia. This list also includes the currencies of Morocco, Taiwan, Pakistan, Saudi Arabia, Serbia, Kyrgyzstan, Tajikistan, Bangladesh, Tunisia, Turkmenistan and Uzbekistan.