Bankers name seasonality, NBU actions as reasons for hryvnia strengthening to UAH 37.5-39/$1, expect it to remain until late March

KYIV. March 17 (Interfax-Ukraine) – The cash exchange rate of the hryvnia has strengthened over the past weeks to UAH 37.5-39/$1 due to seasonal factors and the actions of the National Bank of Ukraine (NBU) and will remain at such a level until at least the end of March, bankers polled by Interfax-Ukraine predict.

“From the end of February, we could observe the process of active strengthening of the national currency in the cash market, which began in January of this year. Since that time, the hryvnia has strengthened by about 6%: from UAH 41/$1 to about UAH 38.5/$1. Among The main factors contributing to this are the traditional seasonal strengthening of the national currency and the behavior of the population against the backdrop of the National Bank’s earlier measures,” said Anton Boldyrev, the director of the treasury and investment services department at Ukreximbank.

According to him, it should be noted that there has been no emissive financing of government spending since the beginning of the year due to the activation of the domestic debt market and improved rhythm in the flow of aid from donor countries.

The banker added that the seasonal factor is the activation of farmers on the eve of the spring sowing campaign.

“The increase in sales of foreign currency by customers also took place in the non-cash market, where in early March, for the first time in a long time, a weekly predominance of supply over demand was recorded. While on the part of the population, we can talk about the specific market behavior of individuals due to the opportunity opened by the NBU to purchase non-cash currency with subsequent placement under a short-term deposit,” Boldyrev said.

He explained that in the future part of such currency is sold on the cash market at a higher rate.

“Simultaneous withdrawal of part of the demand for cash and reinforcement of supply through deposits helps reduce the risks of a currency shortage in the market, which was observed during September 2022. The hryvnia also receives support from the recent steps of the NBU to increase the attractiveness of assets in the national currency due to an increase for banks of reservation requirements for current customer funds,” the expert noted.

Kostiantyn Khvedchuk, a strategic development analyst at Pivdenny Bank, shares his opinion.

“Despite the fixed exchange rate and currency restrictions, we are witnessing the hryvnia strengthening in February-March, typical of the times of the floating exchange rate. In part, this could have been facilitated by the sale of foreign currency by farmers for the sowing campaign. But a significant impact on the strengthening of the hryvnia was made by the possibility of individuals to buy foreign currency for time deposits,” he pointed out.

According to him, these deposits were very popular in autumn and winter, when there was a spread between cash and non-cash rates, and the more people used it, the more the difference in rates decreased.

He predicts that the cash rate will remain fluctuating in the range of UAH 37.5-39/$1, as the continued ability for individuals to buy currency for deposit and the previous experience of the hryvnia strengthening will curb the rush for cash currency in case of worsening expectations. However, the deterioration of financial conditions on the world markets may increase volatility in the Ukrainian market, the banker notes.