Politics and economy are racing one another in pushing the dollar rate up

Photo: Ivan Chernichkin

After a month of quietness the rate of the hryvnia against the dollar is climbing again. According to InterBusinessConsulting, on July 25 the interbank closed with a growth of the U.S. currency by UAH 0.22 (purchase) and UAH 0.17 (sale). In the beginning of the week the trend towards growth continued. Yesterday, the rate went over the psychological mark of UAH 12 with trading closing within the range of UAH 12.10 – UAH 12.20/US $1.

At the same time, the exchange rate of the dollar at currency exchange points did not exceed UAH 12 on Monday. However, the shortage of foreign currency began to take shape. Journalists of the publication visited several offices of leading banks and only at Raiffeisen Bank Aval and PrivatBank it was possible to purchase up to US $1,000, but only on condition that you are client of the bank. The absence of funds at currency exchange points was explained by the fact that dollars were sold only for repayment of loans. However, the banks officially do not admit the difficulties with the acquisition of currency and explain the possible shortage by the increased demand in certain bank branches.

Political factor

There are several reasons for the weakening of the hryvnia, the main one being political. The rate of the national currency weakened on the day following the collapse of the parliamentary coalition on July 24 and the announcement of Premier Arseniy Yatsenyuk of his resignation.

The statement of First Deputy Minister of Economic Development and Trade Anatoliy Maksyuta on worsening of the macroeconomic situation in the country also affected the stability of the rate. The official said the ministry expected GDP to fall by 3% in the first half of the year and by 6% by the end of the year. According to his forecast, inflation this year could reach 19% instead of the initially forecast 12-14%. Maksyuta says the deterioration of the economic situation is due to the military actions in the eastern regions of the country and the trade sanctions introduced by Russia. However, he does not expect further weakening of the hryvnia seeing as continuing cooperation of Ukraine with the International Monetary Fund will serve as a stabilizing factor.

In the bill on changes to the national budget 2014 drafted by the Finance Ministry, the government proposes to fix the hryvnia rate at the level of UAH 12/US $1. “When we were planning the budget, we expected the rate to be UAH 10.8/US $1 until the end of the year. Now we base our calculations on UAH 12/US $1,” he said.

IMF factor

Experts questioned by Capital believe that the IMF tranche in the amount of US $1.4 bn will serve as the key factor that will prevent the hryvnia from sliding. Head of the Analytical Department at Investment Capital Ukraine Oleksandr Valchyshen said the turbulence of the rate will be short-term as the effect of the stand-by arrangement and a new tranche will calm down the fluctuations. At the same time, the expert is convinced that the fact that the Finance Minister provided a guideline for the exchange rate is an outdated practice, which gives the people and businesses the wrong expectations.

“Today, the exchange rate is not an indicator that the ministry can control,” says Valchyshen. He believes that government bodies should provide forecasts based on the macroeconomic indicators, which they can really influence, for instance inflation.

Head of the Analytical Department at Eavex Capital Dmytro Churin says the rate will depend on how fast the political situation stabilizes in the country. “On Thursday the Verkhovna Rada will discuss the format of operation of the government. This could give some certainty and calm down currency speculators,” said the expert, specifying that he does not see conditions for further weakening of the hryvnia. “I think it is possible that after temporary fluctuations, the hryvnia will go back to the rate of UAH 11.6/US $1,” the expert summed up.