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New Year's hryvnia fever

The Ukrainian hryvnia continues to plunge, approaching the historical minimum of UAH 30 to the U.S. dollar. The National Bank considers this New Year's turbulence a seasonal symptom, with which experts agree, predicting the strengthening of the national currency. And the only question is how soon this will happen.

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The national currency of Ukraine became the main source of concern for Ukrainians during the New Year’s holidays. Since mid-December, the hryvnia almost daily updated its minimum mark of 2017, approaching the historical minimum of UAH 30/USD. Although in general, the devaluation of the hryvnia against the dollar in the interbank foreign exchange market was insignificant - only 3.2% - the trend continued after the New Year, and the hryvnia over the two festive weeks fell by 1.7% to UAH 28.54 /USD.

Following the interbank market, the value of cash keeps increasing at exchange offices. Today, on Monday, the purchase of the dollar will cost Ukrainians at UAH 28.60-28.70, euros – some UAH 34.30-34.70. The minimum wage at UAH 3,700, increased from January 1, allows buying only about $130 or EUR 108.

The National Bank once again assured citizens that the turbulent situation on the foreign exchange market is a result of temporary seasonal factors, the effect of which can be leveled throughout the year, as it was in 2017. The regulator blamed for the growing demand for currency the importers, which are stocking goods for the New Year, while the proceeds of foreign currency proceeds during the long period of holidays are traditionally reduced.

Since the beginning of the year, the National Bank has already sold $54 million to smooth out excessive fluctuations in the interbank foreign exchange market, promising to maintain its presence in the future.

"The National Bank has enough resources to further smooth out excessive fluctuations in the foreign exchange market if necessary - international reserves amounted to $18.8 billion at the beginning of January," the NBU deputy head, Oleh Churii said, commenting on the situation.

The beginning of last year was indeed marked by similar unrest, when the dollar on the interbank market rose rapidly, approaching the level of UAH UAH /USD, but in the spring and summer the situation stabilized and the U.S. currency fluctuated within UAH 25-26 /USD.

Experts agree with the assertions of the National Bank that the situation in the currency market is provoked by temporary factors, and expect the strengthening of the national currency in the future. However, they advise citizens to remain patient. Moreover, the positions of Ukrainian exports remain strong on the background of the growth of the world economy and high prices in commodity markets.

Head of the Dealing Operations Division at Raiffeisen Bank Aval Yuriy Hrynenko believes that the dollar will continue to appreciate, but it is unlikely to reach a historic high of UAH 30/USD.

"I do not think that we will go so high. In the budget, the rate is set at about UAH 29 to the dollar. We are unlikely to reach even this mark. But the level of UAH 28.5-28.7 is quite possible," he forecasts.

According to the expert, the effect of factors provoking hryvnia devaluation will exhaust themselves by the end of January, and the national currency will begin to strengthen. Among these factors, Hrynenko singled out high VAT refunds in December, the purchase of currency to pay off dividends, and significant amounts of budget payments at the end of last year.

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Head of the analytical department at Concorde Capital, Oleksandr Paraschyi, is more pessimistic. According to his estimates, the value of the dollar may reach UAH 29-29.3. He expects the trend reversal in the foreign exchange market in the first half of February. "The dollar could reach the level of UAH 29-29.3, and then it will gradually decrease somewhere to UAH 27-27.5 by the summer," the expert forecasts.

At the same time, he admits the possibility of other scenarios, depending on the progress of Ukraine's negotiations with its key lender, the International Monetary Fund, and the outcome of litigation with Russia’s Gazprom and on Russian Eurobonds worth $3 billion.

"The main factor of dollar growth at the beginning of the year was traditionally the unloading of budget funds - this time, mostly of local ones - at the end of the calendar year. The surplus of hryvnia received by various contractors at the end of the year partially falls on the foreign exchange market, both official and shadow," Paraschy explained.

Leading expert of the treasury product sales department at the OTP Bank, Mykyta Mishakov, believes that strengthening the hryvnia in winter is unlikely.

"In our experience, we shouldn’t expect the hryvnia strengthening earlier than spring or a seasonal increase in the volume of foreign currency earnings, which usually coincides with the beginning of the farmers’ sowing campaign," he forecasts.

The expert noted that the current year was not an exception to the general trend, and another wave of devaluation was triggered by the launching of frozen budget funds starting in the fall, combined with a seasonal decline in foreign exchange earnings. At the same time, Mishakov stresses that in 2017, utilization of budget funds was ultimately shifted toward the end of the year.

So, if we believe our experts, the situation on the market will soon calm down, and in spring and summer, the hryvnia, thanks to good prospects for Ukrainian exports, may well regain positions lost during the New Year’s holidays. But it is already obvious that the New Year's fever has become a traditional seasonal phenomenon for the Ukrainian market, and in the next fall, as well as in the winter of 2019, history can repeat itself. That’s, of course, if no conclusions are drawn from the latest wave of turbulence.

Olha Hordienko (UNIAN)

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