On Tuesday, 27 August, the National Bank of Ukraine downgraded the official hryvnia exchange rate against major currencies. Today’s exchange rate is slightly better, but the devaluation of the hryvnia compared to Monday is still quite noticeable.
Thus, the official dollar exchange rate on 28 August was UAH 41.30 per USD 1, which is 8 kopecks more than on 26 August, when it was UAH 41.22 per USD 1. The euro dropped below 46 UAH for the first time and now stands at 46.10 UAH/USD (45.98 on Monday).
Why did the Ukrainian currency fall in price and what factors influenced the National Bank’s position – these questions were answered by economist Andriy Novak in an exclusive commentary for Komersant ukrainskyi
.
According to the expert, the situation at the frontline and Russian missile attacks are the determining factor in the devaluation of the hryvnia.
“The continued devaluation of the hryvnia is primarily due to the intensification of hostilities, the not-so-good situation at the front for the Ukrainian side, and the shelling over the past two or three days. All this creates what is called negative expectations,”
– explains Novak.
The next factor that comes into play in the face of instability is the imperfect financial behaviour of Ukrainians, the economist says:
“Since most Ukrainians have, to put it mildly, poor financial literacy, the only formula for protecting their money [for them] is to exchange hryvnias for dollars, euros or any other hard currencies.”
According to Novak, this is what provokes an increased demand for foreign currencies and leads to “creeping devaluation of the hryvnia”.
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At the same time, for some reason, the National Bank of Ukraine has decided not to intervene in the market this time.
“The NBU has obviously decided not to burn its foreign exchange reserves at a high rate, although it has sufficient amounts. Now, as I understand it, the NBU has taken a wait-and-see attitude, so that the market can calm down and the hryvnia exchange rate can stabilise at a certain level,”
– the expert suggests.
However, Novak stresses that the NBU is ready to intervene if necessary:
“If the exchange rate becomes too negative, the NBU will certainly intervene. But for now, it is taking a wait-and-see attitude.”
However, the expert admits that it is almost impossible to predict the behaviour of the National Bank, as the regulator hardly ever shares its strategies with the public.
“We cannot predict here, because the NBU does not publish its exchange rate strategy. What it calls a controlled floating exchange rate is a very vague wording that does not indicate either its intentions or strategic goals for exchange rate policy. Therefore, there is no forecasting basis here, as there is no exchange rate strategy as such,”
– the economist believes.
Meanwhile, the National Bank is doing well – in six months, the NBU has increased its own capital by almost a third.