Igor Mazepa - news of businessman

Igor Mazepa

Ukrainian investment banker
CEO and Founder of Concorde Capital

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Igor Mazepa: What is affecting the hryvnia’s behavior?


The hryvnia’s strengthening, which has continued for its sixth straight month now, was forecasted by no one, if you will. It’s worth noting that the exchange rate’s “anomalous” behavior began to be observed already in October when it unexpectedly stabilized, followed by its strengthening amid the traditional widening of the current account deficit. This tendency extended into this year. The hryvnia weakened a bit in January, before improving again in February and March.

There have been several factors behind this fortifying trend. In the view of Concorde Capital analysts, the increased purchases of state bonds by non-residents are only one of them.

A development that is difficult to explain is the swelling foreign currency streams from trade credits that occurred in the third quarter. This volume reached $1 bln, compared to $0.4 bln in the first and second quarters, according to statistics of the National Bank of Ukraine’s balance of payments. It’s quite difficult to understand the nature of this splash.

The situation also wasn’t clear cut with the circulation of cash. In November and December, Ukrainians bought more foreign currency than selling it, according to National Bank statistics. Yet in January and February, the public began to actively sell foreign currency, which likely became among the factors fortifying the hryvnia at the year’s start.

At the same time, it can be assumed that part of the demand for cash is being fulfilled by the “pre-elections cash” that is entering the black and gray markets. And that is also supporting the reduction of devaluation pressure. It’s also worth considering that in November-January, month-to-month declines in goods imports were observed, which also helped reduce demand for foreign currency.

Mild hryvnia devaluation, by up to 5% annually, is the fundamentally reasonable tendency in the mid-term perspective. The current account deficit of balance of payments operations – against the background of weak foreign currency inflow to the financial account – will create devaluation pressure. These tendencies in the external sector will remain relevant throughout the year. The negative trade balance will grow since goods imports will exceed exports, while inflow to the current account will be leveled by high debt payments in foreign currency.

Finally, forecasting the exchange rate’s behavior this year will be rather complicated. Assuming that the “pre-elections cash” factor has been significant, then it can be expected that this factor will continue to be in play for most of this year. The end of the presidential elections in April will be immediately followed by the parliamentary elections campaign, which also promises to be heated. And if the money supplies of political players aren’t exhausted by then, then new infusions could certainly arrive.

In the meantime, I expect the exchange rate until the end of March will be in the range of UAH 27/USD.