Page 42 - UKRRptSept18

7.0 FX Source: CEIC
Exchange rate 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Official UAH/USD (eop) 7.7 7.99 7.96 7.99 7.99 7.99 15.77 23.41 26.20 27.52
Official UAH/USD (avg) 5.27 7.79 7.94 7.97 7.99 7.99 11.89 21.84 22.55 26.60
The hryvnia FX rate is volatile, but should finish 2018 near UAH28/$.
Since mid-June, the hryvnia has lost more than 6%, pressed by devaluation expectations and the start of high seasonal demand for the $. Nevertheless, ICU keeps its previous FX projections intact and expect the hryvnia to stay near the UAH28/$level at YE2018. “We think the key mitigating factor for the hryvnia will be successful unlocking of the IMF program and the resulting FX inflows from the Fund and other international financial institutions in 4Q18,” ICU said.
Ukraine’s Finance Ministry expects hryvnia to strengthening in 2019. The medium-term strategy of public debt management for 2018-2020, approved by the Cabinet of Ministers on August 22, suggests the strengthening of the hryvnia to US dollar exchange rate in 2019 to UAH29.4/$1 after devaluation this year to UAH30.1 per $1.
According to the document, in 2020 the hryvnia rate is expected to decline to UAH30.2/$1. At the same time, it was noted that professional market participants predict the gradual strengthening of the hryvnia exchange rate within the next five years as part of the normalization of monetary policy.
In addition, the Finance Ministry said the gradual increase in the nominal exchange rate contributes to the long-term equilibrium of the real effective exchange rate, which, according to the International Monetary Fund, is somewhat understated today.
Ukrainians buy record $917.8mn in banks in July as part of a seasonal trend.
The National Bank of Ukraine sold $526.6mn on the interbank forex market from July 30 to prop up the hryvnia . The NBU is selling currency at a time when it is in a precarious position as it only has $17.7bn in gross international reserves (GIR) – exactly three months of import cover, the minimum economists believe is needed to maintain the stability of the currency. Indeed, the hryvnia dropped in value slightly to below UAH27 to the dollar in August. In particular, the NBU sold $215mn this year and is ready for further interventions to prevent considerable forex rate fluctuations, the regulator said on its website. "The supply of foreign currency from the main export industries (mining, metallurgical and agro-industrial complexes) remains at a fairly high level, which indicates that there are no fundamental reasons for depreciating the hryvnia. At present, there is an increase in demand for foreign currency on the interbank forex market due to seasonal, situational and psychological factors, "the report says. Accordingly, the NBU maintains an active presence on the market to smooth excessive fluctuations of the
42 UKRAINE Country Report September 2018 www.intellinews.com