Starting from October 3, the NBU abolished the fixed exchange rate of the hryvnia against the dollar. From now on, the official exchange rate will be determined based on transactions made in the interbank market. Interviewees say this decision was expected Focus financial experts. They do not rule out the possibility that the dollar may soon become more expensive in Ukraine.
The Board of Directors of the Central Bank decided to implement the managed exchange rate flexibility regime from October 3 this year. This means that the regulator will no longer keep the official exchange rate at 36.56 UAH/USD, as has been the case since July 2022. “Taking into account the steady progress in reducing inflation, the significant accumulation of international reserves, the increasing attractiveness of hryvnia deposits and government bonds, the Central Bank is switching to a regime of managed exchange rate flexibility,” the NBU said. An idiom.
The regulator noted that they will maintain control over the situation in the foreign exchange market, in particular, they will limit fluctuations in the exchange rate by “preventing a significant weakening or significant strengthening of the hryvnia.”
Important
So from today The official rate will be determined based on transactions in the interbank foreign exchange market. “At the same time, the exchange rate in the cash foreign exchange market, where citizens can buy and sell foreign currency, will be determined according to the same rules as before. It has been operating in this mode for about a year and a half,” the Central Bank emphasized, emphasizing that the hryvnia has both weakened and significantly strengthened.
The decision of the NBU will not affect the exchange rate regime in the cash foreign exchange market. NBU said that the exchange rate, as before, will be determined by the supply and demand of foreign currency
Well The exchange rate on the cash market will, as before, be determined by the supply and demand of the currency.. Focus I decided to find out what the decision of the NBU will affect and what dollar exchange rate to expect in Ukraine in the future.
United States assistance is at stake: does it make sense to abandon the directive’s official route?
Taras Kozak, head of the Univer investment company, notes that the fixing of the official exchange rate in the first months of the large-scale occupation calmed the situation in the foreign exchange market amid expectations of devaluation. “Time is passing and the negativities of this decision are starting to affect the economy more and more. The abundance of interest rates (there are official, interbank, card and cash interest) negatively affects economic processes,” he said. Focus.
According to Dmitry Churin, director of the analytical department of the investment company Eavex Capital, the NBU chose the right time for the transition to “a more floating exchange rate of the national currency.”
“Firstly, the regulator has prepared the financial market in advance for this step by gradually removing some administrative restrictions on the foreign exchange market. Secondly, the NBU has carried out additional work to supervise the sphere of cash circulation of foreign currency. “To reduce the risk of purely speculative transactions of the leading players in this market”, – noted.
Taras Kozak also agrees that the regulator’s decision to abandon the official interest rate was generally correct, but it is too early to switch to a flexible rate.
“Ukraine’s exports are stagnating. The grain agreement has expired and exports in the Black Sea are in very small volumes. export earnings are significantly less than the country’s foreign exchange needs to purchase imported goods“, he explained.
Important
In addition, the decision of the NBU over time coincided with the temporary suspension of the adoption of the budget in the United States and, accordingly, the suspension of financial assistance to Ukraine continues as the head of the Univer Investment Company. In general, what is more important is what this solution will look like in practice. How much “controllability” and how much “flexibility” will there be? .
“If there is greater controllability in the exchange rate policy of the Central Bank, then such a decision can be considered valid at any time,” says Kozak, adding: “Then fluctuations will be no more than 1 kopeck per week or a few kopecks per month.”
According to investment market expert Ivan Uglyanitsa, it is possible that the NBU will eventually abandon the flexible exchange rate practice, given the negative impact.
The rate will depend on how actively the NBU will react to deviations.
“This decision will not have any positive effect in terms of changing the pressure on reserves, receiving foreign currency from the NBU, reducing imbalances. On the contrary, as soon as the market sees and understands that everything will remain the same, but now the official exchange rate will change, then movement in this direction and the pressure will increase even more. “Then we will have to change the official exchange rate in one step, perhaps more than once.”commented Focus.
How did the market react and what will the cash rate be?
Anna Zolotko, director of treasury operations department at Unex Bank, notes that the first trades in the Ukrainian foreign exchange market according to the new rules took place at prices below the official rate established by the NBU (36.55-36.60 UAH/$).
“Ukrainians saw today the first practical changes in the introduction of the managed flexibility regime. Banks had to abandon fixing the exchange rate when buying foreign currency and deposit it in a deposit account or in online applications. From now on, these quotas will fluctuate” simultaneously with the Ukrainian foreign exchange market” said.
Important
The cash foreign exchange market has already responded to the NBU decision – In the middle of the day, the value of the dollar increased to 38.4-38.5 UAH/dollar., added the banker. At the same time, as of 12:45, the dollar rate on the “black market” was 37.97 – 38.39 UAH/dollar, while on October 2 the dollar was worth 38.07 – 38.11 UAH.
“While we’re still talking it’s all about the psychological impact: many Ukrainians react to the changes with the term “flexibility”“says Anna Zolotko and adds: In the near future, increased volatility in the cash market will continue.
According to Taras Kozak, President of Univer Investment Company, we will not see significant changes in the cash market in connection with the NBU decision.
“It is highly likely that it will move in the range of 37-38 UAH per dollar,” Kozak said.
Important
However, a more pessimistic scenario should not be ignored. Not excluded in the long run “moderate devaluation of more or less long duration”, It was stated in Unex Bank.
“But given the fact that the regulator strategically aims to maintain high demand for hryvnia assets, namely term deposits in hryvnia, we should not expect very significant fluctuations that experts have frightened Ukrainians of in recent months,” Zolotko said. sure.
A significant devaluation will not occur, as the NBU plans to maintain high demand for hryvnia assets
After all, the banker continues, severe exchange rate turbulence can very quickly increase devaluation expectations in society. For this reason, some Ukrainians may use their savings to buy foreign currency or goods instead of opening deposits in Hryvnia, triggering inflation.
“According to Eavex Captal’s forecasts, this possibility is high in the coming months.” Dollar exchange rate will reach 39.5 UAH/USD. And on the one-year horizon, the exchange rate guide is at 41 UAH/USD; The Ministry of Finance had some clues about this, because the 2024 budget was based on the average exchange rate forecast. 41.4 UAH/USD,” summarized Dmitry Churin, director of the company’s analytics department.
Source: Focus
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