The Ukrainian economy is not experiencing the best of times. The coronavirus crisis, after which the economy of our country and many other countries was left in a paralyzed state, has contributed to this. According to the Ministry of Finance, the general fund of the state budget of Ukraine lags behind by 44 billion hryvnias in revenues. At the same time, the savings of the Ukrainian population decreased by 61,1 billion UAH. This situation could not but affect the hryvnia exchange rate.
Factors affecting the rate of national currency
In spite of the complicated situation in the economy there are no fundamental reasons that would cause devaluation of the national currency rate so far. The volume of the NBU reserves amounting to $28bn will help to smooth significant fluctuations of the exchange rate.
We should not forget that apart from the global pandemic a number of other events have affected the hryvnia exchange rate, including:
- The resignation of the former head of the National Bank Yakov Smoliy and the appointment of Kirill Shevchenko. The reason for that decision was the divergence of views with the authorities on the stimulation of lending, the hryvnia exchange rate and the printing of money. .
- Regular currency interventions in the interbank market to smooth out excessive demand for foreign currency in the necessary volume.
- Emission of money by the NBU.
- Cutting the level of monetization of the economy to 36%.
- Decline in lending to the economy and economic activity.
- Double the GDP in 5 years.
But there are also positive aspects that should not be overlooked. The NBU has a lot of opportunities and sufficient tools to actively saturate the national economy with financial resources. Our economy turned out to be well adapted to the peculiarities of the coronary crisis. This is due to a small share of services in its structure compared to developed countries. In addition, we came to the crisis without major imbalances, the ratio of public debt to GDP decreased to 50% (in 2012 the figure was 90%).
The change of the head of the NBU as well as a number of bills aimed at controlling financial services also became a significant factor in the establishment of the national currency. There is also a law that aims to regulate the activities of non-bank financial institutions, including credit unions, insurance and financial companies.
What scenario for the future of the hryvnia?
Ukrainian currency market is stabilized at the moment. The exchange rate has been at 27 against the dollar for a long time. The NBU, for its part, managed to extinguish the panic attacks with available reserves. Further development of the scenario will depend on the financial crisis in the world.
Experts claim that the government may not agree with the IMF and a default is possible, but there is no confirmation of the claim. There are 2 scenarios for the hryvnia exchange rate - optimistic and pessimistic:
- The first - business and the economy will begin to recover quickly, and the IMF, in turn, will provide the necessary resources for this.
- Secondly, the hryvnia will continue to depreciate in value and without the IMF assistance, it is possible that the devaluation of the hryvnia by an average of 15-20 kopecks per week.
The Cabinet of Ministers has budgeted for the end of 2020 no higher than 27.5 UAH/$. Some international financial experts forecast that the NBU discount rate may be lowered to 11%. A more optimistic data is that it will remain at 12%.
We should not forget that the fight against the coronavirus continues. Therefore, it is possible that the hryvnia may be needed to finance medical and social programs. The NBU will have to print money for these purposes, which may cause inflation. Under such conditions the hryvnia may weaken.
In view of this unclear situation with the hryvnia exchange rate it is important to keep an eye on the changes in the financial market. To receive up-to-date information, control the exchange rate and timely buy or sell currency you may subscribe to Telegram bot.