In addition to buckwheat, toilet paper, salt and sugar, Ukrainians rushed to buy dollars during lockdown. First, one of the largest private banks in the country suspended the sale of cash currency in all branches, arguing that there is a limited inflow of banknotes to Ukraine. Then other financial institutions, including the state-owned Privatbank, joined it.
In some exchangers in Kyiv, Odesa and other large cities, the dollar rate jumped to 29 hryvnias, and partly, due to a lack of currency, they suspended work. There were rumors that they would be closed at all, so that the currency would be handed over only to banks. As a result, prices in exchangers went down to 28.2 hryvnia per dollar.
What will happen to the exchange rate due to the quarantine?
Who took all the dollars: people or business?
Coronavirus does not directly affect our exchange rate. This is just a short-term event that triggered the domino effect against the backdrop of the shakiness of our economy.
“There are no clear economic reasons for the growth of the dollar in our country. We have an epidemic of fear among the population, which rushed to buy not only toilet paper and buckwheat, but also dollars on their savings. Everyone relaxed when the rate last year moved to 23 hryvnias, some even predicted 20. But it did not come true,” says economist Igor Garbaruk.
As before, one of the reasons for the currency panic is the irrational human factor - the lack of financial literacy of the population. Speculators played in panic moods. The difference between buying and selling speaks eloquently about this.
“Also, the owners of government bonds began to leave the pyramid built by Markarova and Smoliy (ex-head of the Ministry of Finance and the current head of the NBU, - ed.). The situation is such that the National Bank “leaked” more than a billion dollars of gold and foreign exchange reserves precisely for them, and not to resolve the currency panic of the population. Importers also wanted to buy the currency, wishing to reduce their risks,” says Garbaruk.
Financial analyst Oleksiy Kushch says that the actions of ordinary Ukrainians and holders of government bonds were not the main blow to the hryvnia. Over the past few days, the population has bought up $ 300 million in the foreign exchange market, holders of securities got a little less. But in total four times more currency was purchased on the market than the population and non-residents combined. Kushch suggests that this is the work of the shadow economy and political elites.
However, his colleague Oleksandr Okhrimenko says that it is also necessary to take into account the huge unregulated black market. He believes that it is mainly ordinary Ukrainians who are pushing the course, especially after the business has been “pushed” by new lockdown restrictions.
Tax relief for business, according to economist Oleksandr Savchenko, will smooth the situation, but cover only part of the losses. The expert believes that on April 4 it is worth moving to another concept of the fight against coronavirus.
Indeed, the new law “On Countering Coronavirus” contains a number of concessions, but they do not save entrepreneurs. The abolition of tax on land and real estate is relevant for a large business that has industrial workshops. The suspension of inspections is also positive, but it has not created significant problems for entrepreneurs before. For medium-sized businesses, they offered practically nothing new. Only some taxes have been canceled: the innovations do not concern rent, VAT, excise taxes.
The situation is negatively affected by the fact that we still do not have a tranche from the IMF, although many of the stringent conditions that have been set for us in the fund have already been fulfilled. The Verkhovna Rada will not be able to pass other bills that the fund requires, which means that by April 3, the issue will most likely not be resolved. And, of course, passively, the situation is affected by the decline in oil prices, which drag down what we have in abundance: metal, ore, grain.
Should we expect 30 UAH/1 USD rate?
As for the prospects for the devaluation of the hryvnia, there are rays of hope. It allows the fact that cash courses at some point rolled back. Probably, state-owned banks will got the dollar. Also, a greater influx of hryvnia is forecasted on March 20, when the National Bank is expected to pay off certificates of deposit.
The panic is also stopped by the fact that the early issuance of deposits in banks has not yet begun. In addition, Ukrainians lose their jobs in lockdown many, which means they spend their savings and do not start buying dollars on them.
Another factor is the high demand for national currency. People stand in lines at banks, not just for the dollar. The banks say that the demand for hryvnia has not yet reached the levels of previous crises, and that there is cash in ATMs. But if there is a lack of hryvnia, it can slow down the devaluation.
Analysts agree that the dollar may freeze at a position of 28 hryvnia. This is not bad for the budget, as it contains the average annual rate of 27.2 hryvnias per dollar. We have the opportunity to fill a leaky budget, which will positively affect the timeliness of social payments. But if there is no competent monetary policy, the authorities will not change their managerial approaches, and quarantine measures will continue, the course may exceed 30 hryvnias.
“If the program against coronavirus proposed by the government, the Verkhovna Rada and the president ends on April 3, the new rate level will stay mear 30 hryvnias. If the lockdown lasts longer, the situation will already be uncontrollable. I don’t like to give such catastrophic forecasts, but we need to be aware of the prospects,” says Oleksandr Savchenko.
Some experts believe that at the end of quarantine, the pressure factors on the hryvnia will weaken and the rate should go down. Okhrimenko is sure that the panic mood will persist for a long time.
“Emotional panic subsides very slowly, only in six months. So the rate may be 28 until the end of 2020. Of course, prices will rise, and much higher than at the rate of 28. But that’s nothing. For us, the main thing is that the course should not be 30-40, "says Okhrimenko.
Be that as it may, there is no point in buying currency now. In general, economists advise ordinary Ukrainians to keep their savings in different currencies so as not to lose too much. If you try to make money on the hype, there are great chances to simply play into the hands of speculators.
Is it possible to stop the hryvnia devaluation?
A lot of time has already been wasted. Some countries actively accumulated foreign exchange reserves last year, while our industry fell and exports slowed. The other day, the National Bank again sold $ 200 million to smooth out excessive exchange rate fluctuations. Also, after repaying part of the IMF loan for $ 414 million, the National Bank has about $ 25 billion left, which should be enough to further curb the exchange rate.
Economist Serhiy Fursa on his page on the social network says that “burning reserves” is not worth criticizing, since they are needed for such moments. The expert is sure that the rainy day for their use has already come. But most of his colleagues disagree with him and blame the National Bank for the current situation with the exchange rate.
“For two years, I criticized the policy of the National Bank, suggested that it would not let goats into the garden, that is, our and international speculators into the domestic market of government bonds. I warned that there would be a trigger, and they will try to escape from Ukraine and withdraw $ 4 billion,” says Oleksandr Savchenko.
Economists believe that the National Bank should not keep its course for non-residents, but first of all think about ordinary Ukrainians. They are sure that the current NBU will not let go of the currency in free float. But there are chances to save the situation.
“If there are thoughtful actions by the authorities, then exchange rate fluctuations can be stopped. My strong belief is that the situation can be resolved with minimal losses. There has been a significant drop in absolutely all economies. Someone, of course, felt this less. But we certainly have a unique chance to soar upwards. There should be changes in the National Bank. When Smoliy replaced Hontareva, there were hopes that everything could change. And now there is a turmoil between the National Bank’s parliament and its board,” Igor Garbaruk recalls.
Since the business is pushing the course in many ways, you need to think about how to provide it with additional guarantees. And, accordingly, forecasts for the rate should be made largely on the basis of whether we believe in such a policy
Garbaruk believes that it is necessary to hold meetings with business at the level of the prime minister. In his opinion, if he had gathered light industry, it would have provided people with gauze bandages in just a week. It is necessary to step up national capital so that it leaves the informal sector, increase exports abroad, and try import substitution of goods that are not currently produced in China.
“The main thing is not just to make a decision, but also to develop a mechanism for its implementation. If you restrict the freedom of people, then you need to offer them an alternative. We need to introduce transparent rules that are equal for everyone. When a business becomes a driver of the economy, we won’t think on the reasons for a high dollar rate,”says the expert.
Oleksiy Kushch also suggests that the best option that can be applied during a coronavirus issue is debts restructuring. Money for their repayment could be directed to the reforms and growth of our economy.
Nevertheless, while the new exchange rate policy from the government is not observed. Along with concessions for business, actions to promote the land market and the new Labor Code are continuing. And this means that now it is hardly worth hoping for a strong hryvnia. At least during the lockdown.