17:48 31.07.2018

Decline in hryvnia exchange rate in July was situational – NBU council head

2 min read
Decline in hryvnia exchange rate in July was situational – NBU council head

Head of the Council of the National Bank of Ukraine (NBU) Bohdan Danylyshyn believes that the decline in the hryvnia exchange rate in July was situational.

"The depreciation of the hryvnia against the U.S. dollar by 2.2%, observed during July, was influenced by factors that are more likely to be situational. The strength of their impact will gradually weaken in the near future," he wrote on his Facebook page.

In particular, according to Danylyshyn, there was an impact of the fact that the global central banks, starting from the end of 2017, focused on increasing their key rates. So, for example, the U.S. Federal Reserve increased the base interest rate several times since the end of last year, setting it in the range of 1.75-2% per annum. This provoked the outflow of capital from emerging markets, as the attraction of capital became more expensive, and this capital moved mainly to the United States and Japan.

"The situation was pressing on the budgets and currencies of developing countries, and, accordingly, it affected the national currency of Ukraine - in the summer the volatility of the hryvnia with a tendency to depreciation increased," Danylyshyn said.

According to him, at present, the outflow of capital with a corresponding decline in the national currency rate is a common trend for developing countries. In particular, the historical minimum of the rate of the Turkish lira against the U.S. dollar (4.9 liras per dollar) was recently recorded. The historical minimum rate of the Argentine peso to the U.S. dollar (25.5 pesos per dollar) also updated. In total since the beginning of 2018, the Turkish and Argentine national currencies lost 16.5% and 25%, respectively, against the U.S. dollar.

At the same time, the effect of the Federal Reserve's rate hike is gradually decreasing. And taking into account the fact that after the growth of GDP of the United States in the second quarter by 4% the slowdown in the growth rates of the economy in the third and fourth quarters of 2018 is expected, the probability of a further increase in the Federal Reserve's rate within one to two months does not look highly likely on the background of the approaching congressional elections in November, Danylyshyn said.

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