Cash dollar market is stirred up by panic. Why NBU maintains apparent calm

Author

Valery Moiseev

Over the past few days, the cash dollar has been rapidly rising in price both in exchange offices and on the "black" market. Prices sometimes reached the level of 38-39 UAH. But yesterday, May 19, prices began to decline in the afternoon. Today the trend has continued.

As of 13:00 the situation was as follows:

According to the resource finance.ua, the highest selling rate in exchange offices on the afternoon of May 20 was 37.5 UAH. Monitoring shows that exchange rates are declining. Banks claim they are selling dollars at 32.10–32.18 UAH.

Given these developments, amid the "successes" of the government in the fight against fuel shortages by regulating prices, doubts involuntarily arise about the rightness of the NBU, which has kept the dollar exchange rate fixed for almost three months, despite the change in the economic situation in the country during this time.

tried to figure out how the exchange rate fluctuations are explained, and why the NBU considers its current monetary policy to be correct.

Reasons for exchange rate spikes

Recall that on February 24, the NBU stopped the work of the foreign exchange market (except for sales) and fixed the official hryvnia exchange rate to the dollar — 29.2549 UAH. Banks were soon allowed to sell cash to the public with a deviation of 10% from the official rate, but only in the volumes that they had previously bought.

The increase in the cash rate that has occurred is mainly explained by the growing demand for the currency and limited supply. The banks practically do not sell dollars, and non-banking structures and illegal exchangers have few of them. There is also the factor of speculation.

As always, with an increase in the exchange rate, there are more people who want to buy dollars, and sellers begin to hold the currency, counting on a rise in price.

Another important factor is the recent increase in the hryvnia cash supply. Part of it inevitably seeps into the foreign exchange market, which stimulates the growth of the exchange rate.

What is expected from National Bank

According to unofficial information, bankers have already begun to apply to the National Bank with requests to carry out targeted foreign exchange cash interventions (to sell cash dollars from their vaults to the banks) and to allow the banks to sell foreign currency more freely.

The arguments given are that exports are gradually recovering, the needs of importers are limited by the bans of the Cabinet of Ministers, and the appearing cash in the cash offices of the banks will force financial companies and the "black" market to reduce their requests.

The NBU has not yet responded to these requests and explains that "during wartime, the cash foreign exchange market is not a priority."

Returning to floating exchange rate mechanism

A few days ago, Kzrzlo Shevchenko, Governor of the NBU, said in an interview that a return to a flexible exchange rate could occur even under martial law. Speculators decided that the "flexible" rate would be higher than the current fixed rate. This also spurred the rise in prices for cash dollars.

To be clear, Shevchenko said on May 20 that the National Bank plans to return to a free dollar exchange rate only after three main economic prerequisites are met:

stabilization of export earnings;
reduced uncertainty associated with hostilities;
revitalization of the financial market so that the NBU can again influence inflation through the key rate.

The NBU understands the disadvantages of fixing the dollar exchange rate, but now the policy of a fixed exchange rate has more advantages than shortcomings.

"In combat situations and a high level of uncertainty, fixing the exchange rate makes it possible to contain inflationary processes (due to cheaper critical imports), control expectations, and also protect savings and incomes of citizens and businesses from rapid depreciation," the NBU Governor believes.

What facilitate dollar depreciation

Yaroslav Zhelezniak, Deputy Head of the Verkhovna Rada Committee on Finance, spoke out about the dynamics of the exchange rate as follows: "If nothing is changed, then it is stupid and naive to expect stability in this matter."

He considers it necessary to do the following:

figure out why as early as in April we again have a negative external trade balance. Perhaps it is worth reconsidering the position on import privileges;
put the situation with customs in order. There are problems ranging from corruption and ending with increasing capacity of checkpoints for our exports to the the maximum;
do everything possible to export by rail and through river ports;
reconsider the possibility of temporary travel abroad for those who bring foreign currency earnings. For example, sailors;
review the list of critical imports;
stop preaching populism. Yes, there is no point in raising taxes. But it is also very dangerous to demand the abolition of all VAT;
not require the NBU to lift currency restrictions. As long as they contain the situation.

"The option of sticking the head like an ostrich in the sand and waiting for the situation to improve is the worst," the MP summed up.