High activity of non-residents on the domestic government bonds market and the need, burdensome for the monetary authorities, to curb inflation give grounds for maintaining the trend toward strengthening of the hryvnia exchange rate against the dollar. This is what Ukrainian bankers interviewed by news agencies say.
"Since the beginning of the year, the hryvnia has been steadily strengthening against the backdrop of excess currency supply. This is partly explained by the substantial interest of non-residents in buying Ukrainian external state loan bonds. Non-residents are selling more currency in order to obtain hryvnias for subsequent investment in government securities. The National Bank sees this and is deliberately lowering the rate – both the official rate and the intervention rate on the interbank market," noted Roman Bondar, head of the dealing center at Aval Bank.
According to Vladyslav Kravets, chairman of the board of NRB-Ukraine Bank, as a result of the high activity of non-residents on the country's stock market, the volume of hryvnias issued by the National Bank will grow. In turn, this could lead to rising inflation if economic growth in the current year is unable to adequately absorb the increase in the money supply. According to him, Ukrainian banks, in connection with excess liquidity, will increase lending volumes while lowering lending rates. Kravets forecasts that in the near term, non-resident activity on the Ukrainian market will persist.
Viktor Zinchenko, head of the treasury at First Ukrainian International Bank, believes that the strengthening of the official hryvnia exchange rate is linked to a sharp increase in the volume of foreign currency earnings of enterprises, which was held back during the election campaign and is now flowing into Ukraine. He forecasts that over the course of a month the hryvnia will strengthen, while quotes on the cash and non-cash currency markets will come as close together as possible.
"The scale of the hryvnia's strengthening in the current year will be unprecedented compared to what we could observe over the past two to four years. I see potential all the way to the level of 5 hryvnias per dollar by the end of the year. Everything will depend on how principled the NBU's position is. In reality, most likely, we will limit ourselves to 5.22-5.25 hryvnias per dollar. In 2005, the NBU will be able to buy up 7-10 billion dollars on the market," forecasts Andriy Voytenko, director of the treasury operations department at Finance and Credit Bank.
The main factors that will lead to such a development of the situation will be the growth of the current account balance of the balance of payments due to the return to Ukraine, in the form of investments, of funds previously withdrawn to offshore zones. In this connection, the growth of monetary aggregates may become a cause of accelerating inflation, and the NBU will have to "tie up" hryvnias by increasing reserve requirements, selling bonds, and so on.
Also, according to Voytenko, the growth of liquidity in the banking sector will lead to a reduction in rates on loans and deposits. According to his estimate, loan rates may decrease from 22-25% to 17-20% by the end of the year. The banker noted that the market expects active liberalization of the currency market from the central bank. However, according to him, such steps will be effective only if the issue of changing the form of contributions (1.5%) to the Pension Fund from the purchase of currency on the interbank market is resolved.
Based on materials from "Korrespondent"