Ukraine starts dollar sale auction

16:28, 19 November 2008
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Abandons direct market intervention

Ukraine`s central bank on Wednesday abandoned direct market intervention to support the hryvnia currency and said it would instead start dollar sales to commercial banks at special auctions, according to Reuters.

The first such auction, taking place on Wednesday according to a central bank directive, allowed banks to purchase dollars at 5.8854 hryvnias plus or minus two percent.

The central bank had been intervening virtually every day on the interbank market since early October, but took no such action on Tuesday, allowing the hryvnia to slip to 6.0 to the dollar from 5.83 the previous day.

The central bank directive said banks would be able to acquire dollars according to the rate proposed, with higher rates for the dollar first, until a fixed sum of intervention funds was exhausted. It did not identify the sum.

Banks need not identify the reason for dollar purchases, the central bank said, but had to specify a rate "to within two places after the decimal point" and a volume, with a minimum purchase of $100,000.

Banks were required to submit bids by 2 p.m. (1200 GMT).

In a memorandum signed with the International Monetary Fund this month to underpin a $16.4 billion loan, Ukrainian authorities undertook to narrow differences between official, interbank, cash and intervention rates for the hryvnia.

They pledged to keep to no more than two percent the gap between the market and official rates.

The bank altered its intervention tactics after the hryvnia sank to a historic low of below 7.0 to the dollar last month by purchasing dollars on the interbank market without limit.

The hryvnia regained ground to a rate higher than 6.0 but the interventions failed to curb excess demand for dollars resulting from foreign capital moving out of Ukraine and declining markets for Ukrainian exports.

Reuters via Guardian

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