REUTERS
Timing is really good for a large-scale easing in currency regulations, the expert believes.
Ukrainian bankers say the weakening of currency regulations due to the introduction of new forex legislation will not significantly affect Ukraine's hryvnia rate in the short term, but may contribute to increased market volatility amid instability.
Chief Economist at Alfa-Bank (Ukraine) Oleksiy Blinov believes that the timing for a large-scale easing in currency regulation in Ukraine is very good now. "Foreign exchange supply prevails in the forex market, which was caused by massive foreign investment in government bonds in hryvnias. At the same time, the ratio of moderate market perception of currency risks and high interest rates on hryvnia resources give no incentives to hold foreign currency sales," he said.
According to the banker, exporters are unlikely to significantly reduce foreign currency sales after the compulsory sale rate is reduced; and in general, the direct impact of currency liberalization on the forex market quotes will be insignificant. "At the same time, the convenience of forex transactions for bank clients has increased considerably. Foreign businesses will be able to manage forex risks more flexibly and independently. This refers to both large-scale enterprises and individuals-entrepreneurs who provide services to foreign clients. And our customers, individuals, have already enjoyed the convenience of buying and selling foreign currency online in just a few clicks on mobile apps," he added.
Read alsoUkraine's new law on currency, forex operations comes into effect – NBU
Senior Analyst at Raiffeisen Bank Aval Mykhailo Rebryk believes that in the short to medium term, innovations will have a slight effect on the functioning of the forex market during periods of stability. In the long run, currency liberalization may contribute to an increase in trading volumes, reducing exchange rate volatility.
According to the analyst, exporters sell a much larger share of revenues than that required by regulations. In addition, last year, there was a shift in traditional seasonal trends in the forex market, which complicates forecasting and makes the benefits of "holding off" revenue less obvious than before.
"However, in my opinion, exporters' opportunities to 'hold off' earnings in foreign currency in anticipation of devaluation do increase. So, in unstable times, this creates an additional reserve for the strengthening of devaluation trends. The situation is similar with the potential increase and even the removal of the limit on repatriation of dividends," he said.
According to Rebryk, the previous requirement for preliminary reservation of hryvnias for the purchase of foreign currency allowed banks and the National Bank of Ukraine (NBU) to see the demand and supply of currency in the interbank market for the day ahead and smooth out fluctuations. "Now, spontaneous large purchases are becoming possible in the interbank market, which, in the context of the 'subtleties' of our market, increases the potential for volatility growth," he added.
UNIAN memo. Law of Ukraine "On Currency and Currency Transactions", which lifts over 20 restrictions on the country's forex market, came into effect on Thursday, February 7. The law increases the terms for settlements under export-import contracts and allows legal entities to freely use their foreign accounts and non-residents – to use their accounts in Ukrainian banks.
In addition, individual licenses for currency transactions are canceled, while online forex trade by individuals is allowed. The limit on currency transfers abroad for individuals without opening bank accounts is increased 10 times.
Moreover, starting February 7, businesses will be able to repatriate dividends for 2018 within EUR 7 million per month and buy currency on any given day without prior reservation of funds. Moreover, from March 1, the rate of mandatory sale of currency by exporters will drop from 50% to 30%.