The hryvnia exchange rate against the US dollar significantly improved its positions in March. Bankers polled by NV Business are confident that the national currency will continue to strengthen in April.
March: agrarians and the grain corridor helped
Bankers claim that during March, the hryvnia only strengthened. According to Oleg Serdyuk, head of the investment department of Ukreximbank, in the cash market during March, the hryvnia in pair with the US dollar gradually strengthened by 3% and is within the range of UAH 37.5-38/$. “While in the interbank market at the beginning of the month there was also a predominance of client sales over demand, which contributed to a significant decrease in the presence of the regulator with interventions. So, if the average weekly sale of foreign currency from reserves in February was approaching $600 million, then for an incomplete March, this figure fell to about $350 million,” he said. Probably, according to Serdyuk, a significant contribution to this result was brought by the demand of farmers for the hryvnia in anticipation of spring field work and the preservation of the extension «grain corridor.
Sergei Kolodiy, Raiffeisen Bank’s chief macroeconomic analysis manager, told NV Business that in March the situation on the foreign exchange market looked pretty good: it is obvious that reserves at the end of March will be significantly higher than the NBU’s January forecast ($26.3 billion), and the exchange rate spread has decreased. “The strengthening of the hryvnia in the unofficial market was influenced by both economic and psychological factors. Among the first is the traditional seasonal increase in the supply of foreign currency by farmers, which, despite the war, manifested itself both in the interbank market and in the cash market. Also, the increase in the supply of currency was affected by the expiration of the terms of convertible currency deposits, which individuals began to open at the end of summer. Another factor was the hryvnia deficit in certain financial companies and small banks,” he said.
Anna Zolotko, Director of the Department of Treasury Operations at Unex Bank, noted that in March the national currency rose in price by more than 1 hryvnia – in the last days of the month, the cash selling rate of the dollar fell to 37.8-37.9 UAH/$. In view of the high autonomy of the cash foreign exchange market and a significant speculative component, it is not worth looking for an unambiguous explanation for this trend. Obviously, the strengthening of the hryvnia is due to an increase in the supply of foreign currency, including from small and medium-sized agricultural producers, who need the hryvnia in the spring to prepare for the sowing season.
Individuals also sold slightly more currency. At the same time, the volumes of their purchases of foreign currency also decreased. In absolute terms, the changes compared to January-February are not very significant, but both of these factors led to a reduction in the average daily negative balance on individuals’ transactions with foreign currency from $20-25 million per day to $12-17 at the end of March. By the way, similar trends were observed in the interbank market during March.
Zolotko believes that the agreement with the IMF is one of the few similar positive news that really affected the foreign exchange market. “The point is not even in the agreed loan, but in the two-stage schedule for the implementation of the program enshrined in the memorandum, according to which a return to the floating rate is likely no earlier than in 12-18 months. The market considered this signal quite unambiguously,” she said. The expectation, according to her, to maintain a fixed exchange rate, along with an increase in rates on deposits in hryvnia for a period of three months, will put pressure on demand for foreign currency in the near future. The continuation of high-intensity hostilities in the east will negatively affect the course, uncertainty about «grain corridor (in the middle of the month).
Expectations for April: the main factor is news from the front
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Bankers believe that in April the hryvnia exchange rate will be within 37 UAH.
«We do not expect significant changes in the hryvnia’s cash rate in April. On the one hand, the balance of risks may continue the trend towards further slow strengthening of the hryvnia. But on the other hand, the space for this is quite limited, because the spread between the official and unofficial exchange rate is already less than 4%. However, positive news from the fronts may become an additional revaluation factor for the hryvnia’s cash rate,” said Sergey Kolodiy from Raiffeisen Bank.
According to Oleg Serdyuk from Ukreximbank, starting from April, additional measures already announced by the National Bank will be introduced, aimed at further growth of rates on term hryvnia deposits. “Such steps will contribute to further stabilization of the foreign exchange market, even if the influence of seasonal factors is exhausted,” he said.
Anna Zolotko from Unex Bank predicts that already at the end of March, the cash dollar selling rate approached the value of the American currency when buying for non-cash hryvnia with deposit (UAH 36.56/$). “The last mark is the theoretical minimum level of the cash exchange rate of the dollar. Therefore, in my opinion, during April there will be several waves of the dollar depreciating to levels close to the indicated minimum, after which there will be a wave of growth in the exchange rate due to the concentration of demand in the cash market,” she said.
Of course, according to Zolotko, the war was and remains a significant factor of uncertainty. “The foreign exchange market almost does not react to the news as such. But the consequences of certain events can still affect the strengthening or weakening of demand for foreign currency. As it was, for example, in the fall, when massive rocket attacks on energy infrastructure provoked additional demand for the currency needed for “household” imports of generators and other energy devices,” she concluded.
