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Ukraine’s central bank awaiting IMF loan to stabilize hryvnia exchange rate

The National Bank of Ukraine (NBU) repeated its inflation forecast of 12% for 2016 and 8% for 2017, despite volatilities on the currency market
Ukraine’s central bank awaiting IMF loan to stabilize hryvnia exchange rate

NBU sees several positive factors on the foreign exchange market that will allow maintaining inflation at the current level, as said in a commentary by NBU Deputy Governor Oleh Churiy for UNIAN.

These include the increase in export earnings against the background of higher prices of steel and iron ore, as well as revenues generated from the sale of new harvests.

“The important factor in mitigating exchange rate fluctuations will be the resumption of cooperation with the International Monetary Fund, which we expect in the near future. This will ensure the growth of international reserves and ease the psychological pressure on the hryvnia exchange rate,” Churiy said.

At the same time, it is noted that the currency market can be affected by a number of short-term factors. Thus, an increase in the demand for foreign currency was recorded in early September due to the repatriation of dividends, in accordance with the developed schedule.

“These factors will have a short-term effect, and will not lead to volatility in the hryvnia exchange rate, which is incompatible with maintaining the inflation targets. The National Bank of Ukraine intends to continue carrying out foreign exchange interventions, if necessary, to restrain the exchange rate volatility caused by temporary factors, since the hryvnia exchange rate has a significant impact on the inflation level,” Churiy said in his commentary.

Churiy also recalled that in August the regulator resumed foreign currency sales on the interbank foreign exchange market, having carried out four auctions since August 31 to sell currency valued at US$140 million.

“The NBU has all necessary resources to level off fluctuations due to boosting international reserves over the past five months to the level of $US14.1 billion,” Churiy noted.

Since August 10 the hryvnia exchange rate against the dollar has been gradually decreasing by 5-10 kopecks daily, exceeding 25 UAH/USD, as compared to a level of 24.7-24.9 UAH/USD during the previous two months. On Monday hryvnia quotations against the dollar on the interbank currency market fell to UAH 26.78/26.88 to the dollar by the middle of trade session.

Experts assume the hryvnia may weaken to 27 UAH/USD this autumn due to the necessity to carry out payments under foreign debt servicing and purchases of natural gas against a backdrop of uncertainties regarding further cooperation with the International Monetary Fund.