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Strengthening of the hryvnia, which began in February, was interrupted in mid-July. In July, the hryvnia devalued to the dollar by 2.2%, so that by the beginning of August the exchange rate has overcome the 27 UAH / USD barrier.
Seasonal fluctuations are hryvnia’s inherent trends. For several years, spring and summer are those times when hryvnia has been traditionally strengthened, and in autumn and winter, it is weakening. This is primarily due to the fact that we have formed a commodity structure of the economy with a predominance of the agricultural sector, as well as due to dependence on imports of energy resources, the demand for which is growing in the cold season. In the fall, business activity is restored after summer, which often "provokes" exchange rate fluctuations in the market.
"The situation repeats from year to year, although each time the growth/decline spiral gradually increases, that is, the long-term negative trend for the hryvnia persists. And it will remain so until Ukraine gets a positive balance of foreign trade (currently, it is negative, and it has to be closed at the expense of loans)," Andriy Popov, partner of Kreston GCG, emphasizes.
People were actually not expecting for the hryvnia devaluation, the population and business have become accustomed to the stability of the national currency. According to a survey of company executives conducted by the National Bank (NBU) in the second quarter of this year, in the 1st quarter business representatives believed that in a year the average rate would be at the level of 29.53 UAH / USD, however, in the II trimester this figure dropped to 28.63 UAH / USD. At the same time, the share of the respondents, which expects the devaluation of the national currency, decreased from 86.3 to 78.3%. More than 57% of respondents expect that the exchange rate in the next 12 months will be in the range of 26-29 UAH / USD. As noted in the study conducted by GfK Ukraine, in June, expectations of Ukrainians regarding the hryvnia rate in the next quarter almost did not change – the devaluation expectations index rose by 1.4 points and reached 150.9 points.
The reasons for the hryvnia devaluation
Each hryvnia exchange rate drop has its own reasons and supporting factors. According to Andriy Popov, in 2018, several factors have influenced the situation:
Against the backdrop of the success of Trump's economic policy and the expected increase in the Federal Reserve System discount rate, there is a loss of interest in most of the raw materials and peripheral currencies in the world. Ukraine has already felt the trend of the "return to the dollar" of international speculative capital when in the third decade of July, non-residents have massively repaid hryvnia bonds, converting liquidity into currency (according to various estimates, the amount of additional demand amounted to $ 200 million). Therefore, this summer has already become an exception to the "cheap summer dollar" rule.
Uncertainty continues with the next tranche from the IMF. The country's leadership in the pre-election season was in a stalemate. On the one hand, the absence of the next tranche threatens to increase the cash gap in financing budget programs (which has already led, in particular, to the crisis of the Pension Fund). But the fulfillment of all the requirements formulated by the IMF for the next tranche (a new rise in gas prices for the population, etc.), also threatens the loss of loyalty of a significant proportion of voters. The budget deficit in terms of collecting taxes and other payments is exacerbated, including because the budget set a much higher rate than it still is (UAH 30.1 / USD).
According to Hryhoriy Pererva, General Director of "Euro-Rating", the decline is connected with the expected deterioration in a number of indicators in the agrarian sector (unfavorable natural conditions), a possible deterioration in the main export directions of the world market (metallurgy – due to a slowdown in the Chinese economy), the further strengthening of the dollar, the likely slowdown or stagnation of the world economy due to the US trade wars, and country’s pre-election instability.
According to Andriy Popov, world prices for basic goods of Ukrainian exports (agro sector, metallurgy) are gradually growing, but the price of oil is growing stronger, and it is not beneficial for Ukraine. Unfortunately, these indicators are interrelated (especially the price of oil and the price of agricultural products). Also in the current situation, the National Bank is trying to smooth out exchange rate fluctuations with those minor instruments that are at its disposal, trying to go out with point-based interventions on the currency market to prevent a false start for the traditional fall-winter devaluation.
National Bank explains the current devaluation by a complex of factors: the transfer of dividends abroad (almost $ 300 million was bought on the interbank market since the beginning of July for these purposes,), the sale by non-residents of their bonds (a reduction of $ 1.3 billion in July), and large volumes of repayment VAT.
"Stock" peculiarities of the exchange rate
One of the most important factors for the dynamics of the UAH / USD rate is the continuation of cooperation with the IMF and the new tranche of the Fund's loan. Negotiations with the IMF on the price of gas and compliance with the state budget deficit continue.
According to Viktor Shulik, director of the market research department of the IBI-Rating Rating Agency, cooperation with the IMF primarily has a psychological impact on the rate, although with tightening conditions on external financial markets it can turn into a critical one.
The cost of gas for the population is a stumbling block for the Cabinet. In the pre-election year, the price of such a decision means staying out of the electoral preferences. Officials offered the IMF many options to change the formula for gas prices, which would not be so unaffordable for the population, but, obviously, the IMF insists on its demand, remembering the previous manipulations of the Ukrainian authorities regarding non-compliance with their obligations.
According to Hryhoriy Pererva, the non-receipt of a loan from the IMF can become a trigger for overcoming the threshold of 30 UAH per one USD.
What will the hryvnia exchange rate be at the end of the year?
There is almost no doubt that the rate will grow. Experts are waiting for the continued devaluation of the hryvnia. "In the summer, the situation is likely to be controlled, but in the fall and winter, the hryvnia can devaluate," Andriy Popov claims.
"Given the greater likelihood of the above-listed negative events and expected seasonal fluctuations, by October-December, the exchange rate may be 27-28 UAH / USD (8-12% higher compared to the current one).In case of aggravation of the situation due to non-receipt of IMF funds, the exchange rate can reach 30 UAH / USD. However, if there is no strong speculative pressure, the threshold of 30 UAH / USD will not be overcome," Pererva says.
Viktor Shulik is convinced that there is a hope that the rate will be kept in the range of 28-29 UAH / USD (at the end of November). But this is only if there are no big scandals with the IMF. Recall, the maximum level of the official dollar was reached in February 2015 - 30.01 UAH / USD.
Since August 1, the National Bank has changed the methodology for calculating the exchange rate, but, according to experts, this will not significantly affect the dynamics of the hryvnia/dollar pair.