The strengthening of Ukraine’s national currency, the hryvnia, may start late in January or early in February, say bankers polled by Interfax-Ukraine.
“The weakening of the hryvnia in January is seasonal and caused by such factors as the closure of annual contracts in foreign currencies. By the end of January, the hryvnia can hit Hr 28.26-28.30 per U.S. dollar, but the NBU will sell dollars to keep the forex rate at Hr 28.1 per U.S. dollar. Inflows of foreign currency will start in February due to income from exports, and the rate will begin to get stronger to Hr 27.9-27.95 per U.S. dollar. The strengthening of the hryvnia in the longer-term outlook will be facilitated by more active exports, as well as the possible signing of a reviewed program with the International Monetary Fund (IMF),” Governor of RwS bank Vladyslav Kravets said.
Director of the Treasury of Bank Credit Dnepr Oleh Kurinnoy predicts that the hryvnia forex rate may stay within Hr 27.5-29 per U.S. dollar in January-February.
“The hryvnia/dollar forex rate band in January-February 2018 will be Hr 27.5-29 per U.S. dollar if domestic and foreign risks are moderate. Dynamics of income from exports, which is the main source of the foreign currency inflow into the country, which, in turn, depends on the situation on the markets of commodities, is the key factor that influences the forex rate in the Ukrainian export-dependent economy. Growing payments to service the country’s foreign debt in 2018, a possible widening of the deficit of the current account, the pace of cooperation with the IMF and other international financial organizations, the dynamics of the dollar against major world currencies, internal and external political risks have a significant impact on the hryvnia forest rate,” he said.
Main factors of pressure on the hryvnia forex rate at the end of 2017 and early 2018 included significantly excess liquidity of the hryvnia on the market as a result of active settlements by budget-sustained and commercial companies to close the financial year, value-added tax refunds to exporters at the end of the year, foreign currency purchases by non-residents early this month to withdraw dividends, as well as peaks of speculative demand on the cash market, Kurinnoy said.
In turn, Hanna Tantsiura, the chief of the forex operations department at Forward Bank, forecasts that the hryvnia will start strengthening by the end of January.
“The forex market always sees an increase in activity after long holidays. The yearly peak in 2017 registered at Hr 27.8 was seen in the middle of January. It’s important how abruptly the hryvnia will go down. Amid the growing market, any importer tries to close a contract as early as possible, while an exporter does not rush to bring foreign currency into the country, which causes even a greater tilt. Late in January, after the holiday season ends, the market will enter a stable course, so we are likely to see a slight strengthening of the national currency and stable levels,” she said.
Director of the Treasury at Piraeus Bank Ihor Yakobchuk also predicts the strengthening of the hryvnia in the near-term outlook.
“As we see from practice, the forex rate usually bounces back after the weakening in the first days of January. We see no reasons for significant fluctuations of the forex rate in January,” he said.
Yakobchuk suggests the weaker hryvnia on Jan. 3-4 was due to the holiday season. “The supply of currency was higher than demand due to the fact that the foreign currency, which came on Dec. 29, 2017, on Jan. 2 and 3, 2018, was sold in the interbank market as mandatory sales on Jan. 4. This currency was enough to meet demand for foreign currency accumulated over the weekend,” he added.
However, leading expert of OTP Bank’s department for sales of treasury products Nikita Mishakov expects the strengthening of the hryvnia no earlier than the beginning of spring.
“Most likely, the hryvnia will continue weakening, even amid a seasonal increase in foreign currency earnings, which usually coincides with the start of farmers’ sowing campaign. This means there will be no strengthening of the hryvnia until spring. Yet, the weakening may slow during periods of hryvnia outflows to the budget, for example, amid quarterly and annual fiscal payments. The next such period is expected by around February 20,” he said.
