Page 9 - UKRRptOct23

from bank machines in their host countries, while those that remained in the country also changed money into dollars to protect against devaluation risks.
The NBU has indicated that it does not plan to address external account imbalances by adjusting the exchange rate in the near term. However, their intention to do so over the longer-term horizon remains uncertain, with no specific timeline provided, Vavryshchuk says.
“The NBU has emphasised its commitment to maintaining exchange rate stability in the short term, with minimal deviations from the current rate,” says Vavryshchuk.
To alleviate structural foreign exchange deficits, the NBU intends to maintain a presence in the FX interbank market and conduct significant FX sale interventions. However, the exact size of the structural deficit and the acceptable level of FX interventions under the new exchange-rate regime have not been disclosed.
“In the immediate future, the NBU is expected to prioritise hryvnia stability to prevent excessive depreciation or volatility in the official exchange rate, which could erode market confidence and trigger substantial FX purchases,” says Vavryshchuk. “As a result, any weakening of the hryvnia exchange rate by the end of the year is expected to be marginal, posing no significant risk to macroeconomic stability.” In the coming weeks, the market may experience some uncertainty as it adapts to the new exchange-rate regime. Cash exchange rates could exhibit higher-than-usual volatility, and FX demand in the interbank market may temporarily rise, necessitating increased FX sale interventions by the NBU. However, this situation is likely to stabilise within a few weeks.
“Looking ahead to 2024 and 2025, we anticipate a gradual, managed depreciation of the hryvnia, aligning with yields on hryvnia deposits,” says Vavryshchuk. “This approach aims to maintain the attractiveness of hryvnia-denominated instruments and discourage massive conversion of hryvnia savings into foreign currency. Consequently, the NBU is expected to maintain a relatively high real policy rate in the coming years. Our end-2024 exchange-rate projection remains unchanged at UAH42 per dollar.” The NBU is well-prepared to manage the FX market situation, boasting substantial reserves that stand at nearly $40bn, significantly higher than pre-war levels,” says Vavryshchuk. This reserve level equates to over five months' worth of future imports, providing a strong buffer. While potential disruptions to international financial aid inflows from the US could impact further reserve accumulation, it is unlikely to result in a significant reduction in existing reserves, as long as inflows from other allies remain intact.
Regarding FX liberalisation measures, the NBU is expected to proceed cautiously in the coming quarters, taking incremental steps to facilitate cross-border trade operations. Rapid liberalisation of flows related to external private debt and foreign direct investment (FDI) is viewed with scepticism.
2.2 Ukrainian men flee the war
"At the beginning of the war, a general mobilization was ordered, including a
ban on leaving the country for conscript men between the ages of 18 and 60.
9 UKRAINE Country Report October 2023 www.intellinews.com