The hryvnia reached a new record against the dollar, reaching almost 40.7 hryvnias per dollar by the end of May. This figure is already indicated in the budget for 2024.
It is noticeable that the hryvnia is weakening compared to the dollar, and this causes outrage among the Ukrainian public. The value of the dollar on the cash market even exceeded UAH 40, which happened for the first time since July 2022, when the National Bank of Ukraine (NBU) changed the fixed exchange rate due to the outbreak of war.
Recalling past events, the NBU switched to "managed flexibility" regarding the exchange rate in October 2023, which contributed to the stabilization of the situation on the foreign exchange market. However, with the beginning of 2024, the hryvnia began to devalue again, leading to the current situation with a record exchange rate against the dollar.
The National Bank of Ukraine (NBU) is confident, backed by large foreign exchange reserves, which also reached a record high of nearly $42.2 billion as of the end of April.
As well as the exchange rate, inflation remains at a high level, but still below the target of 5%, being at 3.2% in annual terms. This low inflation, as well as the stable exchange rate of the hryvnia, are key factors for the economy during the war. Ukrainian banks also received record profits for 2023.
Representatives of the National Bank of Ukraine talk about the controllability of the situation, stressing that the size of foreign exchange reserves allows them to support the hryvnia by means of interventions in the market, if stability requires such measures.
It is interesting that the current exchange rate of the hryvnia to the dollar is slightly behind the level laid down in the budget for the current year, which is 40.7 hryvnias to the dollar.
It is worth noting that the government has recently expressed indignation about the strength of the hryvnia, because a weaker hryvnia would allow more expenses to be financed. However, for the NBU and the country's economic stability, maintaining a strong course is a priority.
In an unexpected turn of criticism, the former head of the National Bank of Ukraine and now a professor at the London School of Economics, Valeriya Gontareva, in an interview with NV Business, described the work of the National Bank as "terrible". She expressed the opinion that the NBU was playing it safe by applying overly strict measures and was lagging behind the real situation with devaluation and interest rate reduction. According to her, this led to "real losses for the country", which she estimates at 200 billion hryvnias.
Gontareva came to the NBU after the annexation of Crimea by Russia and the beginning of the conflict in Donbas, when the country's currency reserves amounted to only 5 billion dollars, and the hryvnia depreciated by half. She carried out a complex reform of the banking sector, which was called the "bank collapse", but this step later turned out to be the key to the stability of the Ukrainian banking system during the war.
Now Gontareva claims that maintaining an artificial exchange rate of the hryvnia prevents the Ministry of Finance from changing financial assistance from partners into larger amounts of hryvnia, contributes to the devaluation of exports and stimulates imports.
In response to these accusations, the current chairman of the National Bank of Ukraine, Andriy Pyshnyi, emphasized in the same publication that if the National Bank of Ukraine had followed Gontareva's advice and liberalized currency policy, it would have led to the "deepest financial and currency crisis in the history of Ukraine." The NBU notes that criticism of "excessive" caution does not take into account the extremely high level of uncertainty that accompanies a full-scale war.
At the beginning of May, the National Bank of Ukraine announced a new stage of liberalization in the foreign exchange market.
The bank's decision, which entered into force in mid-May, provided for permission to import services (so-called "non-critical imports"), as well as the possibility of withdrawing dividends received after January 1, 2024, abroad, and restoring old loans. These steps were implemented almost before the rise of the dollar.
Last year, the NBU also significantly eased restrictions, canceling all restrictions on the sale of cash currency to the public in December. This caused a sharp decline in the rate until the end of the year, which later stabilized.
Many experts believe that the recent weakening of the foreign exchange market, which has increased demand for the currency, along with the government's need for additional foreign exchange revenues, will continue to push the hryvnia up.
Forecasts regarding the future exchange rate of the hryvnia are uncertain, and even the possibility of exceeding the levels of 41-42 hryvnias per dollar fixed in the budget is unlikely. If such forecasts exist, then they are usually not related to economic, but to military risks, which are unpredictable, as the experience of more than two years of war shows.
