Page 46 - UKRRptSept19

Churiy tells UNIAN. “This figure should be reduced - to replace foreign currency debt with hryvnia debt...the arrival of non-residents and the development of the domestic debt market will help reduce currency risks.”
7.0 FX
Ukraine’s hryvnia has grown the most in the world this year against the dollar -- by 9.1%, according to Reuters latest chart of global foreign exchange rates. Runners-up are: Russia’s ruble +8.3%; Egypt’s pound + 8.1%; and Thailand’s baht + 4.9%. Strengthening the hryvnia are high prices for grain and iron, $3.5bn in foreign purchases of hryvnia bonds, and labour remittances of $1bn each month. Weakening the hryvnia are a record number of Ukrainians vacationing in the EU this summer and $4.4bn trade deficit in goods and services.
Despite the low level of purchases, the National Bank of Ukraine continues to buy dollars and euros, “suggesting that appreciation pressures on the currency were also fuelled by other domestic/external factors,” writes Dragon Capital. The exchange rate is UAH25.16/USD, up 10% since the start of the year. During this period, foreign ownership of hryvnia T-bills has risen to $3.4bn, or 11% of the outstanding bonds.
The central bank does not expect volatility this fall in foreign exchange rates for the hryvnia. “We do not see the prerequisites for a radical change in the situation in the economy and the foreign exchange market,” Dmitry Sologub, a deputy governor of the National Bank of Ukraine, told reporters Tuesday. Predicting that Ukraine’s currency will float within a 10% band, he said: “We do not see the prerequisites for fundamental changes, looking at the macroeconomic situation in Ukraine.” The current exchange, 25.15 hryvnia to the dollar, is almost 15% stronger than the 29.4 hryvnia/dollar end-year exchange rate forecast in Ukraine’s 2019 state budget.
Dragon Capital forecasts the hryvnia/dollar exchange rate will end the year where it started -- UAH27.5. Reserves end this year down 5% y/y to $20bn. Dragon writes: “We expect foreign inflows to slow in the coming months as global credit markets grew more risk-averse due to renewed US-Chinese trade frictions, while the Finance Ministry has only moderate borrowings need to cover by the end of the year and will likely limit issuance.”
The hryvnia is undervalued by 61%, according to the latest ‘Big Mac Index’ maintained by The Economist magazine. Based on the hamburger price, the real purchasing power rate of the currency should be about 10 hryvnia to dollar, not the current 26 hryvnia to the dollar.
Ukrainian Prime Minister Oleksiy Honcharuk believes that 'total' currency liberalisation should be prepared this year, launched and completed next year. "Total currency liberalisation is very important. It is important to ensure free flow of capital so that investments come in, so that people are not afraid that they will not be able to get them out of here," news agency Interfax quoted Honcharuk as saying on September 2. The National Bank of Ukraine (NBU) continues the currency liberalisation as macroeconomic conditions improve following the 2014-2015 financial and economic meltdown. The regulator has already cancelled more than 30 FX restrictions since the beginning of the year.
46 UKRAINE Country Report September 2019 www.intellinews.com