Ukrainian hryvnia reaches record low

Макроэкономика 27.08.2014 The Ukrainian hryvnia broke the UAH 14/USD exchange rate on the interbank market on Aug. 26, reaching a record low, having fallen 42% since the start of the year. The hryvnia’s fall has occurred despite the National Bank of Ukraine’s (NBU) regular ForEx market interventions and administrative measures, such as increasing the level of compulsory foreign currency revenue sales for exporters to 100% from 50%. Alexander Paraschiy: The war in Donbas has created huge uncertainty regarding the hryvnia’s prospects. The situation changes daily, making it difficult to gauge the scale of the problem. Market players and speculators have become nervous, adding fuel to the fire. A hryvnia drop of more than 40% shaves off nearly USD 2.5 bln of non-energy imports per month, which will result in a trade balance of zero even if exports fall 30% yoy. Such numbers lead us to believe that the UAH 14/ USD rate is too low, regardless of the war. In fact, aggregate exports from the Donetsk and Luhansk regions (collectively known as Donbas) comprised 25.2% of Ukraine’s total exports in 2013. So broadly speaking, even under a complete stoppage of production in those two regions, the UAH 14/USD exchange rate looks like an overshooting.