The National Bank changed the exchange rate: what does it mean and what will be the consequences/Pixabay
The National Bank has rebuilt the exchange rate. The new official fixed exchange rate is now 36.6. As we all wished during the pandemic. Why did the National Bank take this step? Because he really had no choice.
It was no longer possible to keep the course at the level fixed at the beginning of the war. Reserves went too quickly to maintain this currency stability. And the difference between the official rate and the black market rate reached 25%, hurting exporters and some FOPs, especially in the IT sector.
Why did the reserves run out quickly?
Big budget deficit – this is the first question. Now, by the way, due to devaluation, there will be more Western aid in hryvnias, which should reduce pressure on the budget. This budget deficit was also financed by the printing press. In conditions of limited demand from the population (because there is no money because of the war), it did not directly affect inflation, however, a significant part of these funds went to the foreign exchange market, washing out the reserves of the NBU.
Second< /strong>– trade deficit. Exports are limited in their growth due to blocked ports, while imports have grown very sharply. And the low exchange rate made imports competitive. Now the sharp appreciation of the exchange rate should affect imports, limiting them, and this should help currency stability. At the same time, exporters get an incentive to bring money into the country, to sell most of the foreign exchange earnings here.
Well, and third story – schemes. Conditional “card tourism” and so on. Therefore, it is no coincidence that the National Bank, having rearranged the exchange rate, also activated a number of mechanisms that should limit these schemes. They are listed separately in the regulator's decision:
- citizens will still be able to withdraw UAH 50,000 (equivalent) per month from hryvnia payment cards abroad. At the same time, the limit on withdrawing cash from hryvnia payment cards abroad was changed from monthly to weekly: UAH 12.5 thousand (equivalent) for seven calendar days;
- the monthly limit on P2P transfers of citizens for border from hryvnia payment cards of Ukrainian banks from UAH 100,000 (equivalent) to UAH 30,000 (equivalent);
- a monthly limit was set for settlements abroad using hryvnia payment cards in the amount of UAH 100,000 (equivalent) from all client bank accounts opened in national currency. This restriction will not be experienced by the vast majority of citizens abroad.
Another problem is the significant strengthening of the dollar in the world against other currencies. Against the backdrop of a fixed dollar exchange rate, the official hryvnia exchange rate strengthened against the currencies of our main trading partners, such as Poland. Which is not very logical in the current conditions.
What is the negative of this NBU decision?
Inflation. Although the majority of importers were mentally guided by the market, cash rate, nevertheless, products were brought into the country at the rate of 29.5. For example, gasoline. Now it should rise in price. That will have an effect on all prices.
But the question is that the National Bank operates in a situation where you do not have a good solution. There is only bad and very bad. And so it will be until the end of the war.
The key issue now is waiting. The main task of all branches of government is to coordinate their efforts in such a way that market players do not have expectations that the National Bank, having rearranged the course once, will do so again and again. If they suddenly believe in this, then the rate will feel constant speculative attacks.
Why is the rate frozen and not released? There is only one answer – war. Too much uncertainty and too subtle a psychological situation to let the course go free.
