Economist Vitaly Shapran emphasizes that the amount of currency purchased by the population in July broke a 12-year record. Despite this, he is sure that the National Bank of Ukraine has all the necessary tools to prevent a sharp fall of the hryvnia and the rise of inflation.
The amount of currency purchased by the population in July broke a 12-year record. The net purchase of currency amounted to 1.117 billion dollars.
Friends, what did you want?
First, global inflation continues for 3 years in a row. Let me remind you that in the USA, inflation reached 4.7% in 2021, 8% in 2022, and 4.1% in 2023. That is, the purchasing power of $100 at the beginning of 2021 is now equal to approximately $118 in the US. Of course, this also affects global prices, because the EU is not far behind the USA in terms of inflation.
Secondly, there is a series of unsuccessful decisions of the regulator on the foreign exchange market. In short, the situation is aptly reflected by a popular proverb: "There is no peace behind a stupid head (currency policy) and feet (currency reserves)." Let's recall October 2023, when the NBU hastily switched to a floating exchange rate: this switch cost Ukraine several billion dollars of foreign currency in 2023, so this "holiday of playing the free market" continued in 2024.
Understand that in the current war situation, the market is under the constant influence of a complex of factors that irritate the population and business. "Black swans" attack our market every month. The stabilization of the front line and the operation of the grain corridor are to some extent offset by the effect of the power system failure and the increase in imports, for example, of power equipment. And the blackouts themselves do not add optimism to the population. Therefore, the NBU's October move to a floating exchange rate was premature, as I have repeatedly said.
Talks that, say, international partners are against a fixed exchange rate, seem like children's fairy tales. Central banks have the ability to float the exchange rate of the national currency in different ways. For example, you can set an anchor course, as an option - 40, and let the course float near this mark, or set a corridor of course fluctuations. The monetary authority should send a clear signal to the market and ensure that the population and business have confidence in the stability of the market. Instead, the market was bombarded with the bluster of experts under the influence of the CMU's forecasts and the accounting rate by which the budget is calculated. Therefore, guidelines for devaluation and the passive communication policy of the NBU on the foreign exchange market lead to the washing out (expenditures) of foreign exchange reserves to dampen exchange rate fluctuations.
That is why we are now observing an anomalous situation, when the NBU seems to be supporting the market, and the NBU's currency reserves are at the level of 37.89 billion dollars gross and 26.3 billion dollars net (as of 07/01/2024), and partner support will come to us in full 3.9 billion dollars in the near future, but the market is nervous. Under the existing market algorithm, we will face regular periods of exchange rate instability from time to time, which the regulator will close with interventions at the expense of the NBU's currency reserves. Of course, the NBU will deal with the situation, but due to the unproductive use of ZVR. The catalyst for the National Bank's fundamental mistake in October 2023 was the so-called currency liberalization. I am not at all against it, but in the implementation of the NBU, as well as the transition to a floating exchange rate, it brought more negative than good.
The traditional question: what next? The NBU has all the possibilities to maintain the exchange rate. A negative balance of payments in the first half of the year cannot be the cause of devaluation. The increase in the dollar rate from 36.6 to 42 (currently the upper limit on the cash market) is a considerable inflationary impulse of 14.75%. The situation will be mitigated by the fact that many importers included in their calculations an exchange rate of 40. But further devaluation is guaranteed inflation, so it is unlikely that the regulator will decide on such a step. However, if the NBU agrees to tactical budgetary advantages, then the public will have a legitimate question: what about the "movie" that was shown to us in the NBU's monetary cinema hall, talking about the importance of a high discount rate and high rates for the NBU's DS, and What about the NBU's independence from the government and the unchanging "holy" inflation target of 5%?
From the July situation on the foreign exchange market, the government and the National Bank of Ukraine should gain knowledge with two conclusions:
In Ukraine, it is impossible to drop the exchange rate sharply, even +1 hryvnia leads to public concern and even greater business concern.
And if these actions are not explained and at the same time play the market, then the stakeholders have a feeling of "murky water", which becomes a catalyst for concern. Talking about how it is beneficial for the budget to have a rate of 42, 45, 50, etc., should be stopped.
What will be the budget in 2025-2030 - only time and the confiscation of Russian assets, which, by the way, has already begun, will tell. But the currency reserves of the National Bank of Ukraine are losing weight from such "songs" already today. Therefore, I will not change my forecast regarding the foreign exchange market from February 2024: the exchange rate will be as the NBU wants to see it. All powers, opportunities and tools for maintaining stability in the foreign exchange market are in the hands of the NBU.
