Ukraine’s Central Bank explains stronger hryvnia in winter

Chairman of the Council of the National Bank of Ukraine (NBU) Bohdan Danylyshyn says the U.S. Federal Reserve’s decision to stop raising the key rate and a decline in global energy prices have become the major reasons for the strengthening of the hryvnia, Ukraine’s national currency, which will last until May-June at latest.

Read alsoNBU strengthens official forex rate to UAH 26.89 to dollar for Feb 11

“The Fed’s policy has an impact on realities and prospects of all currencies in the world, including the hryvnia. That is an axiom. In early 2018, it became known that the Fed’s leadership began to doubt whether a tight monetary policy should continue,” he wrote on Facebook on February 11.

According to the banker, the break in increases of rates by the Federal Reserve will last until about June, which will create favorable conditions for Ukraine’s national currency.

In addition, the hryvnia exchange rate was influenced by falling global prices of energy resources, which account for a large share of the country’s imports.

“It seems that we’ve entered a period of relatively low prices of crude oil and other energy resources, among which natural gas is of particular importance for Ukraine along with oil. The reduction in the cost of energy resources is due to the oversupply on the global market,” Danylyshyn said.

In addition, a number of internal factors contributed to the strengthening of the hryvnia, namely the growth in exports of agricultural products and those of steelmaking industry, an increase in revenue from the sale of Ukrainian debt securities, as well as moderate state budget spending in early 2019.

“Exports of Ukrainian agricultural products will grow in March-April. Their temporary decline (for several months) will begin in May. And nonresidents’ investment in government bonds is not long-term: in the summer, foreign investors, following the repayment of debt securities, will probably start withdrawing funds from the Ukrainian market, thus increasing demand for foreign currency,” he added.