Ukraine Implemented Measures to Support Its Currency

Ukraine Implemented Measures to Support Its Currency

On Wednesday, Ukrainian President Volodymyr Zelenskiy made an important statement. The country’s leader stated that his government calmed markets that are wary of a Russian military offensive against Ukraine. Zelenskiy noted that the hryvnia currency was strengthening again after a drop. 

The government took various steps to stabilize the hryvnia, according to Zelenskiy. He talked about the country’s currency during a joint news conference with Dutch Prime Minister Mark Rutte. 

The government of Ukraine criticized what it described as alarmist statements from Western allies about an imminent Russian invasion, saying such warnings were hitting confidence in the Ukrainian economy.

Ukraine, its central bank, and tensions

One day earlier, the country’s central bank raised the reserve requirements for banks’ foreign and domestic currency holdings. Ukraine’s central bank is trying to tackle inflation and support the country’s currency. Unfortunately, tensions with the Russian Federation affected the hryvnia.

Interestingly, the new requirements, which take effect from February 10, follow the National Bank of Ukraine’s decision to raise its main interest rate to 10% from 9% last month. The National Bank of Ukraine raised its main interest rate to the highest point in more than nine months.

According to the central bank, the amount of reserves for foreign currency liabilities will reach 12% of funds from the current 10%. Moreover, reserves for hryvnia liabilities will rise to 2% from zero now, but it will not apply to hryvnias kept on term deposits. 

The National Bank of Ukraine expects its new requirements to withdraw about 24 billion hryvnias ($844.78 million) from the market. As stated above, the central bank wants to reduce pressure on prices and the hryvnia exchange rate. 

Ukraine’s central bank also reiterated it would hike interest rates again at its next policy meeting in March. Moreover, it signaled that mandatory conditions would remain moderately tight.