Ukraine’s central bank introduces ‘managed flexibility’ exchange rate

KYIV (Reuters) – Ukraine’s central bank said on Monday it was introducing a “managed flexibility” exchange rate from Tuesday, relaxing the fixed currency rate it has had in place throughout the war with Russia.

The move, which had been awaited by financial markets, reflected the central bank’s growing confidence that it can manage liquidity, ensure stability and has enough foreign exchange reserves 19 months into the war with Russia.

The National Bank of Ukraine (NBU) said in a statement that the exchange rate would be determined by interbank foreign exchange operations with the “active participation” of the central bank.

It said the NBU would “continue to carefully monitor the situation on the foreign exchange market and will remain a key player on it.”

“The NBU, in particular, will compensate for the structural currency deficit. Thanks to this, the course will be able to change in both directions: to increase and decrease,” it said.

“In addition, the NBU will significantly limit exchange rate changes, preventing both a significant weakening of the hryvnia and a significant strengthening.”

It said the managed flexibility exchange rate would “strengthen the stability of the Ukrainian economy and the foreign exchange market, promote their better adaptation to changes in internal and external conditions, and reduce the risks of accumulating currency imbalances that can be generated by long-term maintenance of a fixed exchange rate.”

It would also be “an important prerequisite for a return to inflation targeting in the future,” it said, adding that maintaining exchange rate stability would remain a priority task for the NBU.

(Reporting by Olena Harmash and Yuliia Dysa; writing by Tom Balmforth; editing by Timothy Heritage)