01.03.09
Currency market
Irena Bulevska
tulip@ua.fm
The official exchange rate of hryvnia against US dollar remained unchanged for 2.5 months and made 7.7 hryvnias/USD in February 2009. The market exchange rate of hryvnia on the interrbank market was 8.1 hryvnias/USD at the end of February, having demonstrated its growth from 7.83 hryvnias/USD, which makes 0.27 hryvnias, compared to the data as of the end of January 2009. Euro grew by 25.3 kopeks (2.5%) and cost 9.84 hryvnias/EUR on February, 27, 2009; the Russian ruble grew by 0.06 kopecks (2.9%) and cost 2.15 hryvnias/10 RUR on February, 27. This generally demonstrates distrust towards national currency and retention of the demand for “safe investment” currency, which in its turn leads to the fall in the national currency exchange rate.
According to the data from the National Bank of Ukraine, the volume of transactions on the Ukrainian interbank currency market (purchase and sale in USD equivalent) was 12,981.7 million USD in February 2009, which is by 18% more than in January (10,997 million USD). Three currency actions were held with 145.8 million USD sold (decree of the National Bank of Ukraine No.12 dated January, 14, 2009).
Average weighted cash exchange rate for hryvnia in USD selling transactions of Ukrainian banks was 8.33 hryvnias/USD compared with 8.22 hryvnias/USD in January, demonstrating growth by 11 kopecks.
The volume of operations on the Ukrainian cash market (selling and purchasing of foreign currency for hryvnia in USD equivalent) was 2932.6 million USD (2,109.8 million USD in January), including:
- the volume of currency purchased from citizens by the banks – 754 million USD (767.5 million USD in January 2009);
- the volume of currency sold to citizens – 2,178.6 million USD (1,342.3 million USD in January 2009).
If compared with January indexes, one can trace gradual sizable satisfaction of the people’s need for dollar cash and decrease of dollar cash demand (by 61%).
Interventions of the National Bank of Ukraine (balance) showed deficit of 1,729.6 million USD compared with 1600 million USD (in dollar equivalent) in January, demonstrating insufficient level of dollar offer and dynamics falling by 129.6 million USD.
Total international reserves (according to current data) – 26,458.74 million USD compared with 28,800 million USD in January showed decrease by 2,341.26 million USD. Individual bank deposits in freely convertible currency (in dollar equivalent) decreased by 811.2 million USD and amounted to 12,233.4 million USD on February 27, 2009, due to instability of many banks resulting in distrust of their depositors.
In January 2009, the real effective exchanged rate of hryvnia increased by 4.8% against December 2008. This was because nominal effective exchanged rate of hryvnia (3%) strenthened and inflation in Ukraine exceeded its weighted index in the countries, which are main trade partners of Ukraine (by 1.8 percentage points). Strengthening of real effective exchange rate counteracted to export, worsened trade balance, decreased currency inflow, and resulted in reduction of National Bank reserves, as the deficit of trade balance is financed from its international reserves.
According to summarized data of European, CIS, and Asian national banks, 83% of countries showed devaluation of their national currencies against US dollar, which testifies to the crises and reflects the state of these countries’economy against the economy of their currency pair country. Official exchange rate remained unchanged in Ukraine due to administrative regulative measures. The National Bank considers hryvnia’s revaluation to be inappropriate because of the trade balance deficit, as it may stimulate additional shrinkage of exports and currency inflow. Substantial revaluation of hryvnia may stimulate individual dollar deposits outflow, which would have a negative influence on general economic situation, though low dollar rate would make paying off the corporative sector debts easier. Therefore, there is no single opinion about forced national currency strengthening.
One of the variants for national currency strengthening can be taking World Bank investment credits for the development of certain national economy sectors, namely: metallurgy industry, chemical industry, and machine building industry, and increase of domestic innovative goods production. First of all it will allow to increase domestic money demand and will make for hryvnia exchange rate raise, as volume does not depend on scale for innovative production (Cobb-Douglass function for innovative production a + b > 1 (growth function).
We forecast that average annual exchange rate for hryvnia will not exceed the range forecasted by the International Monetary Fund (8.6 hryvnias/USD). There will not be any substantial rise and fall fluctuations. Technical analysis shows that dollar has ended its volatile tendency in 2008 and having shown its maximum in December 2008 is now forming relatively horizontal trend, which is supposed to end about June 2009 (according to inside lag, which lasts 6 months in our country), demonstrating a minor decrease. There is a possibility of its strengthening if people get rid of their dollar savings due to dollar rate weakening, though this is a minor possibility.
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