The exchange rate in Ukraine has been rising rapidly: forecasts for the coming days and the threat to the hryvnia
This week’s developments on Ukraine’s foreign exchange market have caused concern among banks, financial companies, and individuals. The dollar’s selling rate on the interbank market increased by 64 kopecks, rising from 39.52/39.54 hryvnia on Monday to 40.145/40.18 hryvnia on Friday, May 24. The euro also rose by almost 59 kopecks, reaching 43.5292/43.5953 hryvnia.
The rise of the exchange rate and its consequences
Significant fluctuations in the interbank market caused the hryvnia to devalue on the cash market. Speculative play to the upside intensified, and dollar selling rates exceeded 40 hryvnia. The euro is approaching a new high of 44 hryvnia per cash euro. The NBU remained relatively calm, periodically issuing “all is well” messages to the media, but not always promptly extinguishing the currency shortage with its interventions, which fueled the appetite of sellers. Amid the uncertainty, banks and exchange offices widened the spreads between buying and selling foreign currency, which had a negative impact on public sentiment. The NBU’s recent easing of payment options for goods and services led to an increase in demand for foreign currency, but the NBU did not always intervene in time to balance supply and demand.
Potential risks and measures
The potential rise in electricity prices, higher taxes and excise duties, combined with the devaluation of the hryvnia and negative public sentiment due to the mobilization law and Russian shelling, could lead to higher inflation, which the National Bank has been so proud of. This will affect the financial market, including deposits and hryvnia bonds needed to finance the budget and military spending. Tax hikes could contribute to a significant outflow of foreign currency and drive many businesses into the shadows. The NBU will have to intervene more actively in the interbank market and respond more quickly to surges in demand for foreign currency. Otherwise, rapidly rising inflation will force the regulator to reconsider its monetary policy. The NBU should act within the parameters agreed with the IMF to stabilize the financial system.
Cash exchange rate forecast for May 25-26
Given the significant pressure on the hryvnia on the interbank and cash markets, owners of exchange offices will decide to play it safe by widening the spread between buying and selling currency. According to the Ministry of Finance, the spread for the dollar will be 20-35 kopeks, and for the euro – 20-40 kopeks. The most aggressive exchangers can set the spread up to 1 hryvnia. This weekend, the dollar exchange rate at most financial company exchangers will be in the range of 39.80-40.65 hryvnia per purchase and sale. The euro exchange rate will be 42.80-44.15 hryvnia per purchase and sale. The Ministry of Finance recommends that citizens who plan to make foreign exchange transactions spend extra time searching for the best exchange rate or use mobile applications to avoid losses.
