Hryvnia to remain stable

The National Bank of Ukraine keeps moving towards the liberalization of the currency regime and switching over to a floating exchange rate for the hryvnia, as required by the agreements with the International Monetary Fund (IMF). Thus, the nation’s main financial institution keeps to the line of consolidating the market’s influence over the currency. It must be noted that since the beginning of the year the hryvnia rose by 0.38 percent comparing to the US dollar, up to 7.96 hryvnias per dollar. Meanwhile, in comparison to the euro, our national currency weakened by 2.98 percent, to 11.2426 hryvnias per euro.

However, according to the representatives of the Internet X-Trade Brokers, in the next couple of months the high involvement of funds at auctions for domestic public bonds by the government, together with their lower cost, will release the pressure of hryvnia liquidity on the currency market and ensure the stability of the national currency. Their reckoning shows that on the Ukrainian market in April the dollar exchange rate will be between 7.96 and 8.02 hryvnias per dollar.

Meanwhile, bankers predict stability for the hryvnia for as far as late summer. Thus, Eduard Nazarenko, head of the currency position control department at Khreshchatyk Bank, believes that by September the exchange rate for the hryvnia will not have exceeded 7.94 to 8.00 per US dollar.

“Despite talk of Ukraine refusing to take the next tranche from the IMF, which would lead to a worsening of the assessment of the country’s investment climate on the international currency market, the adequate forex reserve level at the National Bank of Ukraine (NBU) and excess currency inflow over its outflow, which would be seen this year, gives a chance to the NBU to maintain the national currency exchange rate in the required range. If this year’s national budget was made with the prospective rate of 7.95 hryvnias per US dollar, and the National Bank thinks it acceptable to have the amplitude of exchange rate fluctuation within several percent per year, without abrupt leaps, I think that the exchange rate will remain within the limits of 7.94 to 8.00 hryvnias per US dollar till the beginning of September,” said Nazarenko in his comment to Interfax.

The same forecast was made by Viacheslav Yutkin, first deputy board chairman of Prominvestbank. But he thinks the hryvnia will remain stable all the year round, and not only till the end of the summer. Yutkin specified that he could not see any threats which might result in significant exchange rate fluctuations in 2011.

“This year’s balance of payments deficit, in particular that related to the preparation to the Euro-2012, will be covered by payments to the financial account. On the whole, the exchange rate will remain stable in 2011. May through August 2011, we can expect a slight consolidation of the hryvnia, due to a decreasing demand for energy carriers at the end of the heating season. But we cannot see any considerable threats for the hryvnia in 2011,” added Yutkin.

Natalia Shyshatska, head of the monetary and currency market department at VAB Bank, also predicts a stable exchange rate in the months to come. At the same time, according to her reckoning, the increase of the ratio of imports in the structure of foreign trade operations can cause further pressure on the hryvnia exchange rate. Yet the powerful reserve position, which the NBU has demonstrated recently, will allow the regulator to smooth out the possible fluctuations.

“Practice shows that in such cases the NBU instantly reacts by currency interventions. Also, Ukraine is expecting the next IMF tranches and, in the case of a positive outcome, the influx of currency will help consolidate the hryvnia,” believes Shyshatska.

As far as world tendencies go, the analysts are convinced that the range of currency fluctuations of the main currency pair, euro/dollar, will be very wide in the next months. “The exchange rate for the pair euro/dollar on the world market in April will fluctuate in the wide range of 1.295 to 1.4152 dollars per euro,” says Volodymyr Oleksiuk, expert at the analytical department, X-Trade Brokers Ukraine. According to Oleksiuk, investors expect that in April the European Central Bank will increase interest rates by 0.25 percent, which can influence the increase of value of the euro. This is because economic growth rate in the EU, notably in the 17 eurozone countries has finally picked up.

At the same time the expert explained that the exchange rate of the euro depends on many factors, including the debt load of the EU’s peripheral nations, the stability of the budget policies in these nations, and the inflation rate, which is now relatively high.