KIEV, Sept. 5 – The hryvnia recovered against the U.S. dollar on Wednesday after the state-owned savings bank sold massive amounts of dollars, with the National Bank of Ukraine making verbal interventions to back the local currency.

The hryvnia closed at 8.14 to the dollar in trading between commercial banks on Wednesday, compared with 8.19/dollar on Tuesday, dealers said.

Oshchadbank, the country’s savings bank and one of the largest players on the forex market, has resorted to selling “big amounts of dollars,” one dealer said.

There was speculation among dealers that Oshchadbank had been acting on behalf of the NBU, which has been quietly using its forex reserves to try to calm down the markets.

The NBU on Wednesday said it was standing by carefully watching developments and ready to intervene with “the entire complex of measures” to prop up the hryvnia if necessary.

“The NBU is carefully following status and dynamics of money and credit markets,” Olena Shcherbakova, the head of the main money and credit market department at the NBU, said, according to Interfax. “It stands ready to use the entire complex of regulatory measures should signs of a loss of equilibrium emerge.”

The hryvnia began losing value against the dollar last week amid speculations that the cash-strapped government had asked the NBU to make monetary emissions to help it cover budget deficit.

With a $15.2 billion stand-by loan from the International Monetary Fund suspended for the past two years, the government has been struggling with borrowing money at reasonable rates to help finance growing budget deficit.

The hryvnia dropped on Tuesday amid speculations that the NBU had provided about 4 billion hryvnias in refinancing loans to three undisclosed commercial banks on Friday.

That’s a major change in pattern as previously such refinancing loans had been issued in the neighborhood of 100 million hryvnias to eight banks.

The NBU on Wednesday de-facto confirmed the massive loans had played a role in the hryvnia’s latest depreciation.

“The level of banking liquidity was very high at about 25 billion hryvnias,” Shcherbakova said. “This is caused by the NBU’s tender on Friday to support liquidity of three banks with 3.82 billion hryvnias.”

The money was wired to the three banks on Monday, while on Tuesday the hryvnia had suddenly dropped against the dollar with hryvnia supply growing sharply on the market.

Shcherbakova said the rise in the liquidity “contributed to more active operations by the banks, extending horizons for management decisions on money and credit markets.”

The massive refinancing loans were given to three well-connected banks that were supposed to buy Treasury bills helping the government to finance populist programs ahead of October 28 elections, according to Ihor Lutsenko, editor at Ekonomichna Pravda.

“This money is pumped into the budget,” Lutsenko said. “The government is painting a picture of an improved situation ahead of the election.” (tl/ez)