The National Bank of Ukraine relaxed currency exchange controls on March 3 amid signs of rising public confidence in the banking system.
From March 5, the limit on cash withdrawals per day from hryvnia deposit accounts will rise from Hr 300,000 (about $11,400) to Hr 500,000 (about $19,000). At the same time, the daily limit on foreign currency withdrawals will increase from the equivalent of Hr 20,000 (about $760) to Hr 50,000 (about $1,900). And limits on daily foreign currency purchases will rise from the equivalent of Hr 3,000 (about $114) to Hr 6,000 ($228.80).
The Ukrainian central bank imposed limits on foreign currency operations by the public in February 2014 in an effort to curb the devaluation of the national currency.
“This decision is based on signs of a gradual recovery in trust in the banking sector and the stabilization of the currency exchange market,” NBU Governor Valeria Gontareva said after a meeting of the NBU board on March 3. She said there was a slight surplus of deposits over withdrawals in hryvnia, and a slowdown in demand for foreign currency.
At the same time, other restrictions that have plagued Ukraine’s exporters and importers will remain unchanged at least until June.
Inflation to slow
The NBU board of directors reiterated its commitment to hold inflation to 12 percent in 2016. The hryvnia has lost 19 percent of its value against the dollar since December. According to central bank forecasts, the key factors that make this target achievable are low global energy and food prices, along with sluggish economic growth, which will continue to suppress consumer demand.
Cautious monetary policy
The central bank kept its key discount interest rate at 22 percent. The main factors influencing the decision not to move the rate were domestic political instability, the hold-ups in cooperation with the International Monetary Fund, and unfavorable trade conditions, including slow progress in switching to new markets and weak prices for Ukraine’s main export commodities.
While a high discount rate slows inflation, it can also cause problems. Loans in Ukraine are unlikely to get any cheaper and there will be no increase in lending.
“That means that Ukrainian business will remain on a shoestring budget,” Oleg Ustenko, the executive director at the International Bleyzer Foundation, told the Kyiv Post. “Due to lack of credit the real economy sector won’t get any additional impetus for development.”
Ustenko said the NBU’s move was completely predictable. Under current circumstances, economic growth cannot be stimulated by changes to either monetary or fiscal policy, he said.
“The only way to reanimate the Ukrainian economy is to conduct structural reforms, fight corruption, lift administrative barriers to business, and reform the judiciary and state administration.”
Kyiv Post staff writer Olena Savchuk can be reached at [email protected]
