UAH exchange rate decrease is situational - opinion of experts

Kiev. 15 August 2011. INTERFAX-UKRAINE

     The decrease in the UAH exchange rate is of a temporary nature and cannot be seen as a stable trend. This is a common opinion expressed by the experts questioned by the Interfax-Ukraine agency.

     "It does not really make sense to regard the recent drop in the exchange rate of hryvnia against dollar as evidence of a devaluation tendency by analogy with the second half of 2008," - said Andrey Ponomaryov, Head of Conversebank Treasury.

     "First of all, for devaluation to actually start, there has to be a certain volume of free hryvnia, which is hardly available on the market: balances on banks' correspondent accounts held in the National Bank of Ukraine (NBU) are at the record low level of UAH 13-15 billion. With this fact considered, hardly will the NBU take active steps to replenish the UAH system by long-term refinancing. Second, the high cost of UAH resources and absence of a possibility to credit customers in foreign currency will propel banks into "cutting down" to the utmost - up to 10% - on their currency position by offering their customers other available tools for hedging currency risks.

     "I would not qualify the decrease in the UAH exchange rate in the interbank market as a trend. It is sooner a situational effect caused by the tactics of the largest banks-players in this market," - commented Vice Chairman of the Finance and Credit Bank Board Sergey Borisov.

     Head of Treasury Department of First Ukrainian International Bank Anton Stadnik is of opinion that devaluation that just started has a seasonal character.

     "The period from the second decade of August to the beginning of September is always marked by a certain business recovery, which results in the exchange rate fluctuation. I am positive that the market will level off in a couple of days and adjust itself provided that there will be no sharp ups and downs in balances on banks' correspondent accounts," - assumes the expert. Though he does not exclude the possibility that it is the tactics of non-residents in the stock market that has recently put pressure on the UAH exchange rate.

     "One can suppose that the increase in the USD exchange rate was instigated by a failure of the auction held by the Ministry of Finance of Ukraine, and by the fact that non-residents have sold VAT-Government bonds. The fact that the S&P agency downgraded the crediting rating of USA by one point is reported to have resulted in drastic fluctuation in all financial and stock markets, which in its turn brought about plunging of the indexes. In similar situations, many investors opt for disposing of high liquidity and, at the same time, high risk assets. UAH investments in VAT-Government bonds are just suchlike assets in the eyes of foreign investors", - added A. Stadnik.

     The analysts of the Forum bank do not forecast any further weakening of the UAH exchange rate in the near future.

     "Crossing the psychological threshold of UAH 8 per $1 is certain to perturb many active players in the interbank market of Ukraine. Nevertheless we do not expect further weakening of hryvnia. Even if purchase of currency in the interbank market gets substantially activated, the NBU has sufficient set of tools to keep the exchange rate within the limits set in the state budget for the current year," - the analysts pointed out.

     Ukrinbank's Treasurer Oleg Bronin also underlines that the NBU reserves are sufficient to offset sharp currency exchange fluctuation.

     "The outlooks of market participants for short-term prospects of the currency flow have situationally shifted to lowering the national currency exchange rate. However, this trend in my view is not going to be long-standing, as the volume of foreign currency reserves, which is by the way is being at its historical peak, allows the NBU to flatten out the exchange rate at the level of UAH 8 per $1," - said the expert.

     As was announced before, the UAH exchange rate in the interbank market crossed the psycological threshold last Friday and went down from UAH 8.0010 per $1 to UAH 7.9975 per $1 the following business day.

     The exchange rate of UAH 7.9500 per $1 was applied while calculating the state budget for 2011. The NBU experts find the UAH fluctuation range of several per cent during the year acceptable.