Ukraine central bank says hryvnia weakening temporary

The hryvnia’s increased volatility in recent days has been related to public discussions on possible changes to the parliamentary majority and the Cabinet’s membership, though the general condition of the currency market has remained balanced, according to a National Bank of Ukraine (NBU) statement on August 4.



“ForEx market dynamics and the hryvnia exchange rate now are defined not only by macroeconomic factors, but also by the situation in eastern Ukraine, political developments, the information sphere and the development of dialogue with IFIs,” the statement said.



The NBU noticed that foreign currency inflow from non-residents in June-July was near USD 1 bln net. On top of that, net supply of foreign currency from banks and enterprises in June-July was near USD 0.4 bln. As a result, the hryvnia spread on the ForEx market has been narrowing steadily over the last three months till July 25.



“The trend provides solid ground for minimizing exchange rate volatility in the future, which will be supported by reduced political tensions after clarity is reached regarding the government’s fate, as well as parliamentary support for a series of important economic initiatives introduced by the government,” the NBU predicted.



The NBU also stated that strengthened stability of the currency market will be supported by continued successful cooperation with the IMF under the standby agreement. The national currency started weakening after Prime Minister Arseniy Yatsenyuk announced his resignation on July 24, dropping from UAH 11.6/USD to UAH 12.5/USD on August 4. A week later, parliament rejected Yatsenyuk resignation.



Alexander Paraschiy: The NBU’s interpretation of events is in line with our view. Fundamental economic factors point to the fact that the hryvnia has substantial strengthening potential on the back of the narrowing C/A deficit, improving capital flows and resumed inflow of foreign currency deposits to the banking system. Still, the war in the east and recent political shake up have prevented the national currency from strengthening. Ukraine’s Armed Forces are making progress in Donbas so unless a new escalation of the conflict happens, we can expect the hryvnia to move closer to the UAH 11/USD exchange rate in the next couple of months.

Источник: Конкорд Капитал