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The hryvnia hit its lowest level against the U.S. dollar in the last six months to UAH 7.95/US $1. Moreover, fears of a rapid crash of the American currency forced many people to consider selling their “green reserves”. However, experts say it is not worth panicking as the current strengthening of the hryvnia may quickly be reversed by the next leap in the hryvnia-dollar exchange rate. Experts also forecast that the hryvnia-dollar rate could rise to UAH 8.20/US $1 by the end of December
The fall in dollar exchange rate in Ukraine at the end of November – early December was mainly because of the traditional shortage of hrynvia at Ukrainian export companies that should have paid their taxes to the budget by the end of November. In order to stock up on hryvnia, export companies sold dollars from their hard currency reserves in foreign bank accounts.
This is were they fell into the trap of profiteering banks that pushed the exchange rate below the UAH 8/US $1 threshold. The banks managed to pull this off with the help of the NBU and a bit luck.
To be sure, last Thursday all U.S. banks were closed for business in the spirit of celebration of Thanksgiving Day. So, in order to avoid this problem with tax payments, exporters sold large volumes of hard currency on Wednesday and Friday. Accordingly, this precipitated a flood of hard currency onto the market that caught Ukrainian consumers off guard. This is the main reason for the fall in the hryvnia-dollar exchange rate on cash and non-cash markets.
The NBU also contributed to the revaluation of the hryvnia when it announced on Friday the purchase of dollars at an exchange rate UAH 7.89/$1.
On the one hand, this gave grounds for Ukrainian banks to set the rate at UAH 7.85-7.95/$1 on the cash currency market, hoping that people would start selling dollars under the pressure of the national media. On the other hand, the NBU set for commercial banks the so-called “exchange rate floor” that the rate should not dip below. For those in doubt, recall the events this past May, when the NBU announced buying the dollar at the arte of UAH 7.62/US $1 on the interbank market and within a month the rate jumped to UAH 8/US $1.
This floor offers commercial banks a great opportunity to buy cheap dollars with a view to its further growth against the hryvnia. Moreover, financial experts believe this will happen in the foreseeable future. The deadline for exporters to pay their taxes was November 30. Meanwhile, in the first days of December the sale of dollars on the currency market at a loss is bound to subside. At the same time importers will markedly increase their volumes of purchases on the backdrop of a falling exchange rate.
That said, one must not forget about the foreign economic factors of influence on the hryvnia rate. Starting in December active payments on the private deposits of Ukrprombank client will begin. This is around UAH 2 bn, 80% of which will be converted in dollars. The budget deficit, which President Yushchenko estimated at around UAH 150 bn, has so far not been covered. Should the government agree with the NBU on hryvnia emission for the budget before the elections, the dollar will increase in value very soon.
But, even without the influence of these factors, those people that buy up cheap dollars today will earn UAH 0.20 per dollar. In January and February the rate of the U.S. currency may grow even more to UAH 8.40-8.80/US $1. Moreover, the calculations of the International Monetary Fund, according to which the average annual exchange rate of the hryvnia versus dollar in 2010 will be UAH 8.60-9.00/US $1, thus allowing to compensate the purchase of imported goods using proceeds from the sale of exported proceeds, have not been reversed. Financial experts warn, however, that the currency exchange rate may reach the aforementioned level only in the second half of 2010.
At the same time, experts do not recommend buying euros at the moment. “The current exchange rate of the euro is fluctuating around the level of US$1.50/EUR 1 is unfavorable for Europeans, as it reduces the competitiveness of European products on international markets relative to U.S. products,” says Natalia Shcherbatyuk, a financial expert at the Factor financial company. “Europeans will do everything to curb the growth of the euro in relation to the dollar,” Shcherbatyuk is convinced.