The NBU is artificially keeping the dollar exchange rate in check: an analyst has cited two reasons and given a forecast
Shevchyshyn describes the unprecedented scale of foreign exchange interventions as the key development of recent weeks.
According to him, the NBU has been selling over $1.1 billion on the interbank market for the fourth week running. In total, the regulator has spent over $5 billion during this period.
“Never before in the history of the Ukrainian foreign exchange market have such volumes of currency been injected into the market for four consecutive weeks,” the analyst notes.
In his view, this indicates a deliberate policy to support the hryvnia.
Why is the NBU keeping the dollar exchange rate stable?
Shevchyshyn emphasises that this is his personal assessment, but he sees two possible reasons.
The first is the fight against inflation.
According to the analyst, if the dollar exchange rate exceeds approximately 45.5 UAH, importers may begin to revise their prices en masse, which would accelerate inflation and force the National Bank to tighten monetary policy.
The second reason suggested by the expert is political.
He draws attention to discussions surrounding a possible election process, increased activity among political players and certain decisions by the authorities. In Shevchyshyn’s view, in such a situation, a sharp depreciation of the hryvnia would create a negative media backdrop.
At the same time, the analyst emphasises that this is merely his assessment, and that it is most likely both factors are at play simultaneously.
What is currently happening in the foreign exchange market
According to Shevchyshyn, at the end of June, currency sellers became more active following the end of the tax period.
The average daily supply of currency rose by 16 per cent to $233 million, whilst the interbank market deficit narrowed from nearly $207.5 million to $178 million.
A decline in demand is also being observed in the cash market. The summer season and holidays have led to a 7 per cent fall in public demand for foreign currency, whilst the cash market deficit has narrowed by almost 18 per cent.
Why the hryvnia remains stable for now
Shevchyshyn believes that the National Bank has sufficient international reserves to continue this policy.
He cites Ukraine’s receipt of the first tranche under the Ukraine Support Loan programme, amounting to 3.9 billion euros, as an additional factor. According to the expert, this enhances the NBU’s ability to support the hryvnia exchange rate. The European Commission also confirmed the receipt of this funding at the end of June.
At the same time, the analyst cites the pace of international funding, inflation and the impact of Russian attacks on the Ukrainian economy as risks.
What will the dollar exchange rate be?
In the base-case scenario, Shevchyshyn expects the official dollar exchange rate to remain within the range of 44.4–44.9 UAH in the near future, whilst the cash rate will be 44.7–45.2 UAH.
In an alternative scenario, if the dollar begins to strengthen on global markets and demand for the currency rises, the exchange rate could once again approach 45 UAH.
According to the analyst, the final decision will still rest with the National Bank, which is currently showing a willingness to intervene actively in the foreign exchange market.
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He specialises in the foreign exchange market, macroeconomics, monetary policy, the banking sector and public finances. He regularly comments on economic developments for the Ukrainian media and is the author of analytical articles and forecasts on the hryvnia exchange rate, inflation and financial markets.
