Teletrade: hryvnia exchange rate - what to expect by the end of 2020? Default 2020 - is it possible and why
On Thursday, September 24, a press conference was held at the Interfax-Ukraine news agency on the topic: "Hryvnia exchange rate - what to expect by the end of 2020. Default in 2020 - is it possible and why?" The press conference was attended by Sergey Rodler, an analyst at the international financial company Teletrade, Vladimir Koval, a financial and economic analyst, Ph.D. in Economics, and Maxim Oryshchak, a financial analyst at the Center for Exchange Technologies.
The experts answered the questions of concern to the majority of Ukrainians regarding the exchange rate of the hryvnia in relation to major currencies, and also clarified the situation with the likely default in 2020.
The local elections in Ukraine, the likelihood of a future tranche from the IMF, and the prospects for a new quarantine associated with the spread of coronavirus in the country were named as the key factors determining the dollar against the hryvnia in the current fiscal year.
"In recent years, against the backdrop of the political situation in the country, we have repeatedly seen how people preferred foreign currency to the national one and how these elections will be held is still difficult to say," comments on the situation with the local elections Sergei Rodler, an analyst of the international financial company Teletrade.
However, Maksim Oryshchak, financial analyst at the Center for Exchange Technologies, gives such a forecast for the hryvnia exchange rate - "Now the hryvnia is weakening against the dollar, but so far I do not predict global changes in this trend. It seems to me that the closest mark where we can see the hryvnia is This is UAH 28.9 per US dollar. We already saw this milestone in January 2018. I predict that by the end of the year the rate will rise higher and reach UAH 29 - 29.5 ".
As for the timing and expectations of a new tranche from the IMF, let's not forget that in order to receive it, "Ukraine has a number of requirements: political conditions: continuation of the fight against corruption, independence of anti-corruption institutions, economic conditions: restructuring of problem loans for state banks," sums up Vladimir Koval conditions for receiving the next tranche.
It is also worth considering the situation with the pandemic in the world, experts say.
"Until now, the pandemic acts as a negative driver in the world - it is like a factor of uncertainty. Local isolation of all countries led to a global decline in world GDP and hit business hard. That naturally negatively affects on the exchange rate of the national currency," said Sergey Rodler, an analyst at Teletrade.
The speakers also noted other factors that negatively affect the positions of the national currency:
"The growth of the minimum wage (6 thousand UAH. From January 1 and 6.5 thousand. UAH. From July 1) is political PR. This is an increase in the budget deficit by UAH 41.4 billion. At the same time, the living wage will increase by 9% - from UAH 2 270 to UAH 2481. All social benefits depend on this amount, which will also grow, and under the current conditions of the need to repay the external debt, with a budget deficit, the national currency will also lose "- financial and economic analyst Volodymyr Koval expresses his own fears.
"By the end of this year, we need to pay $ 5.24 billion in the third quarter and $ 2.99 billion in the fourth. Of course, at the time of debt repayment within the country, demand for currency will form and we will see its growth, and the hryvnia, accordingly, will become cheaper. But one should not expect a strong fall, since there is money in the country "- commented on the situation with the country's external debt, Teletrade analyst Sergey Rodler.
As for the default, the opinions of experts diverged somewhat, Vladimir Koval believes that such a possibility cannot be ruled out:
"The main source of economic growth, in the government's understanding, is inflation and deficit. In any unfavorable scenario on the external and internal markets, Ukraine is threatened with the inability to finance the deficit. This is the first step towards default."
Sergei Rodler, an analyst at the international financial company Teletrade, is more optimistic and calls the default scenario unlikely:
"This year it is not worth waiting for a default. Firstly, if you look at the credit default swap, we will see that the five-year sovereign CDS of Ukraine reached a maximum value in March this year - it was just at the start of quarantine and then they gradually decreased. The value of CDS shows an assumed probability of default of 9.09%. Over the past week, the cost of CDS increased by + 2.94%, but still, we passed the peak of tension. Secondly, today Ukraine's gold and foreign exchange reserves amount to $ 29 billion and, in principle, there is nothing to fear ".
Thus, taking into account all the variables, the press conference participants agreed in the forecast of the dollar growth by the end of the year with a high degree of probability.
"I think that the real exchange rate by December may be within UAH 29.50, and of course it is worth waiting for the results of the local elections because they will determine the fate of future IMF tranches and after the situation with tightening quarantine in Ukraine becomes clear, it is possible to give a more accurate forecast for the course "- summed up the financial analyst of Teletrade company Sergey Rodler.