Business Update – March 12: NBU to protect Ukraine economy, Chinese buy Kyiv stock exchange share

Trade indexes in Europe, the U.S. and beyond crashed to record lows upon opening on March 12. Shockwaves rippled across global markets, heralding hard times and possible economic recession ahead for the global economy and Ukraine.

As the global stock selloff deepened, investors showed a lack of faith in U.S. and EU policy responses to COVID-19, Bloomberg reported. Meanwhile, Ukraine’s central bank moved to protect the Ukrainian economy from knock-on effects in the absence of any specific measures announced by the government to insulate its economy from external shocks.

The National Bank of Ukraine (NBU) sold a further $76 million worth of hryvnia in a foreign exchange auction on March 12, the regulator stated. On March 11, the NBU sold off $350 million in order to defend the national currency value, which is down by 8% since January. The day before, the NBU said it sold $270 million in a forex transaction.

With a global banking crisis also looming, the NBU cuts its refinancing rates from 11% to 10%. “The NBU Board made its key policy rate decision when inflationary pressures were decreasing faster than expected, and the economy needed further support,” the central bank stated. The regulator plans to decrease the rate to 7% by the end of the year but that plan is based on the key assumption that Ukrainian cooperation with the IMF will continue.

Banking bosses also said the NBU does not plan to introduce foreign currency exchange limits, and that its current reserves are enough to smooth currency rate fluctuations amid the market turmoil. Countries hardest hit by the coronavirus epidemic have implemented strong measures to try and (unsuccessfully) rally their markets, reassure investors and help consumers. Others, such as the U.S., have been criticized for a slow fiscal response that has deepened the crisis.

The Ukrainian central bank said it could also review inflation forecasts in April, depending on developments. The bank’s January forecast provides for 4.8% inflation at the end of 2020, but this may be revised in April, the NBU also stated on March 12.

The banking system is strong and extra liquid, with Hr 200 billion and $9 billion in currency, NBU deputy governor Oleg Churiy has stated, according to Interfax-Ukraine. “This is enough to satisfy demand. For example, the demand for withdrawing deposits, if any,” said Churiy.

Ukraine’s National Securities Commission has allowed Chinese investors to buy 49.9% of the PFTS stock exchange, the leading and largest trade exchange system in Ukraine with a reported market cap of $140 billion. Interfax-Ukraine reported that China’s main commodity exchange, the Bohai Commodity Exchange (BOCE, registered in Hong Kong), has had its 49.9% acquisition approved by the regulator.

BOCE has been working on the gradual acquisition of the PFTS since late 2018 at least. Back in June 2017, BOCE also purchased the previously state-owned Ukrainian Bank for Reconstruction and Development for 83 million hryvnia ($2.96 million). BOCE is China’s largest spot commodity exchange and reports an annual turnover of $1 trillion. It’s jointly-owned by private investors and several state-owned companies linked to the Chinese Communist Party.

The finance minister expects a new Ukraine-IMF program before May. The new government of Ukraine has confirmed the main criteria of the new Extended Fund Facility (EFF) with the International Monetary Fund and expects that it will be launched before May 2020, Finance Minister Ihor Umansky has said, as reported by Interfax-Ukraine.

The coronavirus pandemic has had a limited or neutral impact on the economy of Ukraine, the NBU assesses so far. Ukraine’s exports continue to rise, it claimed. “Further increases in the physical volumes of exports have more than offset certain declines in prices for some of the goods the country exports. At the same time, import prices (especially energy prices) are declining even faster than export prices,” according to the central bank.

Copper exports are down 15.9% in the first two months of 2020, news that comes days after experts warned Ukrainian exports of food and metals could be affected by the viral pandemic affecting demand and supply lines. According to customs statistics released by the State Customs Service of Ukraine, export of copper and copper products decreased to $9.8 million in value through January and February.

Ukraine saw a near 16% decrease in foreign exchange earnings on all of its ferrous metal exports in January–February, the State Fiscal Service has reported. Metal companies here saw a drop in 15.8% on these exports, falling to $1.4 billion in the two month period, lower than the same period in 2019.

IT companies are worried about the coronavirus pandemic, but they also see some opportunities. “With people in self-quarantine, games and entertainment will be primary ways to pass the time and make the quarantine period more manageable,” said Doug Dyer, vice president of Gaming at Innovecs, a global software development company.

Ukrposhta state postal service plans to raise 100 million euros for new sorting centers by summer, its CEO has said. “We are now waiting for the finalization of a loan in the amount of 100 million euros over the next two or four months. These funds will be used to design new terminals and launch mobile branches,” Igor Smelyansky, director general of the company, said according to Interfax-Ukraine.

Smelyansky said he will not participate in the current competition to head the Ukrainian state railway Ukrzaliznytsia, the Ukrposhta CEO wrote on Facebook. According to him, the decision was made for several reasons. “Firstly, I love Ukrposhta, we have big plans here and much has not been done. My contract is valid until June 30, 2021 or until the day the shareholder decides that it is completed,” he wrote.

Ukrtransnafta, the state oil transit service, began offloading 90,000 tonnes of Azeri Light oil on March 12 for transportation to Belarus, the company’s press service has said. Transportation to Belarus, which has sought to improve ties with Kyiv amid a fallout with Russia, will be carried out via the Odesa-Brody pipeline and one of the two lines of the Druzhba pipeline in the direction of Mozyr Oil Refinery.

The average price of gas imports by Ukraine were 3.9% down in February, the economy ministry has stated, according to Interfax-Ukraine.

Source: www.kyivpost.com