The official hryvnia exchange rate, after rising by 5 kopecks on Wednesday, dropped by 17 kopecks on Thursday to 40.8823 UAH/$1, a new all-time low.
According to market participants, the exchange rate came close to the level of 41 UAH/$1 near the end of interbank trading.
The reference value of the hryvnia exchange rate set by the National Bank of Ukraine (NBU) at 12:00 on Thursday fell by 16 kopecks to 40.8423 UAH/$1, while on the cash market the dollar rose by 12 kopecks to 41.10 UAH/$1.
A day earlier, the National Bank announced new easing of currency restrictions, in particular, it facilitated servicing of Eurobonds through dividends of guarantors and sureties. In addition, on July 11, the NBU expanded the list of defense goods available for purchase abroad for volunteers and allowed businesses to buy foreign currency to repay loans from international financial institutions (IFIs).
Since the beginning of 2024, the official hryvnia exchange rate has depreciated by 7.6%, or UAH 2.88, and since the NBU switched to managed flexibility on October 3, 2023, it has depreciated by 11.8%, or UAH 4.32.
In June, the official hryvnia exchange rate fell by 3 kopecks to 40.5374 UAH/$1, although in the middle of the month the exchange rate hit a record low of 40.6908 UAH/$1, while in May it fell by 90 kopecks.
The NBU attributed the weakening to increased government spending after receiving external financing in March-April, as well as the impact of the largest package of currency restrictions for businesses since the start of the full-scale war announced on May 3.
The NBU’s net sales of dollars in the first week of July decreased to $630.91 million from $670.41 million in the previous month. In June, it amounted to $2.99 billion compared to $3.07 billion in May.
Earlier, the Center for Economic Strategy (CES) released an updated consensus forecast of seven investment companies and think tanks. According to it, the forecast for the hryvnia exchange rate at the end of this year has been lowered from 40.5 UAH/$1 to about 42 UAH/$1, which generally correlates with the 42.1 UAH/$1 set in the state budget for the end of 2024. The forecast for the average annual exchange rate was also downgraded from 38.7 UAH/$1 to 40.1 UAH/$1, compared to the budgeted level of 40.7 UAH/$1.
The reference exchange rate of the hryvnia to the US dollar on the interbank foreign exchange market as of 12:00 a.m. on March 7, 2024.
Indicator 06.03.2024 07.03.2024 07.03.2024 Change, %.
Reference hryvnia to US dollar (UAH/$) 38.3099 38.1029 -0.54
The International Monetary Fund (IMF) supports the decision of the National Bank of Ukraine to switch from a fixed exchange rate regime to a managed flexibility regime starting October 3, and believes that this will further support the stability of the economy and the foreign exchange market, said Natan Epstein, Deputy Head of the IMF Mission to Ukraine.
“The ability to manage the exchange rate in a way that minimizes fluctuations seemed to us to be an important step forward,” he said at a briefing in Kyiv on Wednesday.
Epstein reminded that as part of the program, the NBU in late June approved a strategy supported by the Fund to normalize its monetary and exchange rate policies, which includes a relaxation of exchange controls, as well as a gradual increase in exchange rate flexibility and, ultimately, a return to the inflation targeting system.
According to the deputy head of the mission, the conditions necessary for abandoning the fixed exchange rate have been met, primarily a decline in inflation, a stronger position of international reserves, and stability in the foreign exchange market.
In general, Epstein noted the trust that the NBU managed to gain in managing monetary and foreign exchange policy during the war.
The IMF representatives also expressed satisfaction with the existing dialog between the NBU and the Ministry of Finance and its results, which do not call into question the independence of the central bank.
According to the Ministry of Economy, the average annual exchange rate of the hryvnia to the US dollar in 2023 is expected to be 37.5 UAH/$1 in the draft state budget for 2024, compared to 32.3 UAH/$1 last year.
For 2024, the draft state budget provides for an average annual exchange rate of 41.4 UAH/$1.
As reported, the average annual exchange rate for this year during the adoption of the state budget for 2023 last fall was expected to be 42.2 UAH/$1, and the exchange rate at the end of 2023 was 45.8 UAH/$1.
At the same time, the National Bank has kept the official hryvnia exchange rate fixed at 36.57 UAH/$1 since the end of July 2022. On the cash market, the exchange rate has stabilized at around 38 UAH/$1 this year, while last year it was falling to 39 UAH/$1 and even more.
Over the past week, following the announcement by Finance Minister Sergii Marchenko of the forecast for the average annual exchange rate for 2024, the hryvnia has fallen to 38.3 UAH/$1 on the cash market.
In a September survey, members of the European Business Association predicted an average annual exchange rate of 41 UAH/$1 for 2024, while a year ago they expected 43 UAH/$1 for 2023.
The transition from a fixed to a floating exchange rate with a temporary limitation of daily exchange rate fluctuations within a narrow range is proposed by UC Berkeley economics professor Yuriy Horodnichenko in an article on the analytical platform Vox Ukraine.
“Because of the nature of a fixed exchange rate, potential price distortions and imbalances accumulate over time, and the economy eventually reaches a tipping point where an exchange rate adjustment is needed again. Consequently, another exchange rate correction during a protracted war will almost certainly happen,” he explained the need to abandon this regime.
According to Gorodnichenko, among the imbalances already visible are an increase in the real exchange rate, a gap between the official and cash exchange rates, a lack of attention to the euro (since the EU is Ukraine’s main trading partner) and the political postponement of necessary exchange rate adjustments.
“Given the high sensitivity of inflation expectations to the exchange rate in Ukraine, a free floating exchange rate could entail excessive macroeconomic volatility. Indeed, the hryvnia fluctuated sharply during 2014-2015 after the first Russian invasion. We need an intermediate solution,” said the economist.
In his opinion, limiting daily fluctuations in the exchange rate (for example, 0.1% on any day) could be an acceptable intermediate solution. Among the advantages of this option Gorodnychenko mentioned operational freedom of the central bank, the absence of sharp macroeconomic adjustments and shocks, the NBU’s management of the euro-hryvnia exchange rate during Ukraine’s accession to the EU.
He added that such a regime does not mean a mandatory devaluation of the hryvnia. “The experience of the hryvnia during the COVID-19 crisis highlights how useful this is for Ukraine: after the hryvnia weakened during the first days of the crisis, it eventually strengthened as demand for Ukrainian products remained high. Due to such flexibility the Ukrainian economy felt relatively well in 2020-2021,” reminded the economist.
Gorodnychenko stressed that this policy alone cannot solve all problems, such as the broken mechanism of monetary transmission, and to achieve the desired results it will need to be supplemented by other measures, particularly restricting capital flows, the alignment of interest rates on deposit certificates of the NBU and government bonds.
The economist pointed out that there are other options for intermediate solutions, but they are, in his opinion, less preferable.
On Tuesday, the hryvnia exchange rate in the cash market strengthened by more than 1 UAH/$1, to a level of about 39 UAH/$1, at which it stayed on the first day after the National Bank refixed the official rate from UAH 29.25/$1 to 36, 57 UAH/$1.
According to market participants, at present in some non-bank exchangers in Kyiv it is already possible to buy a dollar a little cheaper than UAH 39/$1, while most banks still offer a selling rate of UAH 39/$1 or worse.
According to the “Minfin” resource, on Thursday morning Raiffeisen Bank declared a selling rate of UAH 38.8/$1, Universal Bank – UAH 38.9/$1, while PrivatBank – UAH 39.15/$1, while the best buying rates are now do not exceed UAH 38.4-38.5/$1.
On the cash “gray” market on Thursday morning, according to the Ministry of Finance, the dollar was quoted: buying – UAH 38.4 / $ 1, selling – UAH 39 / $ 1, having won back UAH 0.1-0.2 after falling by 1.1 -1.3 UAH the day before.
Oleg Gorokhovsky, co-founder of monobank, said that in the first day after the launch on Tuesday evening, about $9 million were sold in the application for buying non-cash currency for placement on a deposit for a period of three months and 11.273 thousand contracts were concluded with a total number of bank customers of about 6 million.
