At the end of 2023, Ukraine observed a decrease in the exchange rate of the hryvnia against the dollar, which continues at the beginning of the new year. The National Bank of Ukraine has already highlighted this situation, explaining it as "seasonal factors" and urging citizens not to worry.
During the period from the end of November to the beginning of January, the official exchange rate of the dollar increased by two hryvnias, rising from UAH 36.01 to UAH 38.12 per dollar. December 30, when the dollar cost UAH 39.63 at exchange points, is considered a record. In the first days of January, the exchange rate fluctuated a little, and on January 5, its prices averaged UAH 39.05 for buying and UAH 39.20 for selling.
It is also worth noting that the euro has become more expensive in exchange offices: it was bought for 42.60 hryvnias and sold for 42.85 hryvnias.
The question of the hryvnia weakening trend remains open. Although the National Bank attributed the changes to seasonal factors, future forecasts remain uncertain and may depend on various factors affecting the country's economy.
"Seasonal decline in the exchange rate? Not only that," said the Deputy Chairman of the National Bank of Ukraine, Serhii Nikolaychuk, during the telecast of the national telethon. He explained that in conditions where the exchange rate is not fixed, but is formed in the mode of "controlled flexibility", fluctuations in both directions are a natural phenomenon.
"In December, we observed a significant demand for currency, which led to the weakening of the hryvnia. Such dynamics are due to seasonal factors, increased demand for currency due to record budget expenditures. In addition, traditionally, at the end of the year, the demand for currency from the population also increases," explained the Deputy Chairman of the NBU.
However, seasonal fluctuations are also affected by the war, which makes the dollar practically the only available form of protection of one's income from inflation, devaluation and simply "dark days".
According to the information of the central bank, in December 2023, Ukrainians showed extraordinary interest in the currency, buying record volumes. Commercial banks made a total turnover in the amount of 2.596 billion dollars, of which natural persons purchased 1.026 billion dollars.
Such a large demand was last recorded 11 years ago, in November 2012. Economist and former member of the board of the National Bank, Vitaly Shapran, indicates that December is defined by an increase in spending, especially in the public sector.
"At the end of last year, this 'tradition' was also supported by the Ministry of Defense, deciding to partially pay the salary for January 2024 in December 2023. The conditions of the war have a negative impact on trust in the national currency, which has led to the liquidity and devaluation of the hryvnia," Vitaly Shapran said in a comment for the Ukrainian BBC.
The expert also pointed out that the National Bank had the opportunity to stop these processes, because as of January 1, its international reserves reached 40.508 billion dollars.
"That is, the National Bank of Ukraine had enough resources to curb the seasonal devaluation, but did not take the necessary measures, even taking into account the fact that in October 2023 Ukraine switched to a floating exchange rate. The decision to accumulate gold and foreign currency reserves, reaching a new historical record, led to a decentralized devaluation of the hryvnia," the financial expert added in his comments to the Ukrainian BBC.
Forecasts and risks of Ukraine's economic development are becoming the subject of attention, as Deputy Head of the National Bank Serhiy Nikolaychuk emphasizes, within the framework of the "managed flexibility regime" introduced a few months ago, the hryvnia may continue to lose its value or, on the contrary, strengthen.
Experts believe that such fluctuations are likely in the future as well, and emphasize that 39 hryvnias per dollar is not yet the limit.
A few months ago, the hryvnia was forecast to weaken in 2024 to an annual average rate of about 41 hryvnias to the dollar, according to the finance ministry and business representatives. However, in this situation, Ukraine's receipt of international aid, expected at the level of 37 billion dollars, will play a big role. However, the tranches from the main donors, the USA and the European Union, have not yet received final approval.
According to the National Bank, if funding is available at the level of last year, the exchange rate will be maintained in accordance with current indicators.
However, experts point to the ambiguity of the situation, since the devaluation of the hryvnia can increase budget revenues, but at the same time lead to an increase in external debt and the cost of servicing it.
An important aspect is the decision made in December 2023 to suspend payments on the official debt with the G7 countries until March 2027, which, according to financial expert Vitaly Shapran, gives the Ministry of Finance some freedom.
However, there is also the flip side of the coin: the weakness of the hryvnia may reduce the ability of the Ukrainian economy to absorb foreign aid without consequences for domestic inflation.
Vitaly Shapran considers a radical artificial weakening of the hryvnia, similar to what happened in 2022, unlikely. The National Bank has already responded to such concerns, asserting that it has sufficient capacity to ensure the stability of the exchange rate in the future.
