The hryvnia exchange rate continues to hold at a low level relative to foreign currencies. Currently, in exchange offices it stands at 5.12-5.2 UAH per dollar and 6.13-6.28 per euro. Thus, the exchange rate growth per week on average still reaches 2-3 kopecks. Market participants claim that the depreciation of the national currency is negatively affected by entrenched trends in the country's economy, as well as the actions of parliamentarians and government officials.

"The devaluation of the hryvnia is a justified phenomenon," claims Deputy Head of the Treasury of Nadra Bank Dmytro Reznichenko. "Ukraine's foreign trade balance went negative already at the end of last year, and this caused a significant deficit of foreign currency on the interbank market." Accordingly, the rate of the dollar and euro in exchange offices rose, also considering that speculators are always ready to work on increased demand for currency from the population.

The eternal factor plus weather

Another reason for the hryvnia's devaluation is seasonality. "After the New Year holidays, importers started working earlier than exporters, so there is a currency deficit on the non-cash market," says Oleksandr Soboliev, head of the dealing operations department at BIG-Energy Bank. According to him, the growth of the dollar exchange rate is explained by importers' readiness to buy it even at an inflated rate.

"Entities of foreign economic activity, guided by signals from the National Bank (about a possible change in currency policy. – DELO), prepared for changes in advance. The point is that when concluding contracts with counterparties, domestic firms have already "locked in" an increased dollar exchange rate and are ready to buy it even at 5.15 UAH. Banks, of course, are not against it, it's profitable for us," the expert explains.

Probably for the first time, experts note weather as one of the factors in the currency's depreciation. "This is also one of the reasons. Fierce frosts caused difficulties in transportation and, as a result, a deficit of cash currency in exchange offices. However, this will continue for four to five days, no more," says Stepan Karasaiev, a dealer at Privatbank.

Mass psychosis

However, the depreciation of the national currency occurred primarily because of politics, experts have no doubt. According to the dealers surveyed, the fall of the hryvnia exchange rate was caused mainly by the actions of deputies who sent the government into resignation and provoked a mini-crisis in the country. "As always, a mass psychosis on the part of the population began," notes Soboliev. According to Karasaiev, the mood of dealers and ordinary citizens has already been negatively affected by a statement made the day before by someone from the NBU's government officials about a possible correction of exchange rate policy this year – most perceived it precisely as a potential further decline in the hryvnia exchange rate.

However, the NBU continues to assure bankers and the population of its ability to maintain stability on the currency market. "We have enough reserves to maintain stability," reassures First Deputy Head of the NBU Anatoliy Shapovalov.

However, bankers are not at all sure of this. They acknowledge that a stable dollar deficit has now established itself on the interbank market, caused by the rising cost of gas, and the NBU can no longer cover it in the necessary amounts. It is "no secret that not every commercial bank can open a limit at the National Bank, and the NBU does not satisfy requests to the full extent either," asserts Reznichenko. He predicts even greater difficulties for the regulator over time. "As soon as non-residents begin to exit their hryvnia investments, the tendency toward the hryvnia's fall will intensify and the NBU will not have enough reserves to artificially hold it," the expert warns.

According to dealers, the hryvnia exchange rate will most likely decline. Including in the long term. "During the current year, the hryvnia may devalue to 5.2 per dollar, that is, the level of April last year," says Dmytro Reznichenko. "Before the elections, the non-cash dollar rate will grow to 5.15 UAH per dollar, and by the end of the year one can expect 5.30 UAH per dollar. Likely, the NBU rate will be pulled up to these values," says Viktor Aksakov, a dealer at Ukrgazbank.

Published in the newspaper "DELO" No. 60 of January 20, 2006.