Page 16 - Ukraine OUTLOOK 2025

A controlled devaluation: The NBU retains near-complete control over the hryvnia’s exchange rate, with market forces playing a minimal role. Since the onset of Russia’s full-scale invasion, the strength of the hryvnia has hinged on two factors: the central bank’s willingness to maintain its value and the sufficiency of resources to do so.
“The sufficiency of resources has not been an issue thanks to generous inflows of foreign financial aid since February 2022,” analysts noted, adding that funding scheduled for 2025 is expected to fully cover the NBU’s intervention needs.
This means that the future trajectory of the hryvnia is entirely at the NBU’s discretion.
Inflation concerns guide short-term policy: In the near term, the NBU is likely to prioritise inflation management over exchange rate adjustments. “The hryvnia weakening is likely to be minimal in 1H25, as the central bank will want to avoid adding fuel to the current inflationary pressures,” experts observed.
The NBU has shown limited appetite for depreciation since mid-2024, reflecting its cautious approach amid elevated inflation, which reached 11.2% y/y in November. However, as inflation risks subside later in 2025, the central bank is anticipated to adopt a more aggressive depreciation strategy.
Moderate depreciation expected: Analysts forecast a relatively modest hryvnia depreciation of less than 10% against the US dollar in 2025, with the exchange rate projected to reach just below UAH46/US$ by year-end.
This controlled pace is seen as a balancing act, maintaining economic stability while supporting Ukraine’s external competitiveness. “With an assumed depreciation of this reasonable size, we believe that UAH-denominated assets will outperform yields on FX-denominated assets,” experts said, highlighting the potential appeal of local currency investments in the current environment.
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