Ukraine: The hryvnia falls amid elevated demand for foreign currencies
The Ukrainian hryvnia weakened in August as demand for foreign currency in the interbank foreign exchange market exceeded supply. On 31 August, the hryvnia traded at 28.25 per U.S. dollar, shedding 5.16% from the same day a month earlier. Although the hryvnia has depreciated only a mere 0.34% against the dollar since the beginning of the year, it has lost 10.1% of its value year-on-year.
The hryvnia’s weakness in recent weeks came largely on the back of seasonal factors. Amid the early start of the harvest season, energy resource importers’ demand for foreign currency surged due to the need to pay for gas and oil products. In addition, real income growth bolstered household demand for imported consumer goods and services, leading to higher demand for foreign currency among Ukrainian importers. Meanwhile, on the supply side, the supply of foreign currency by the population fell as the summer season comes to an end, a common development that leads to downward pressure on the hryvnia’s exchange rate.
Despite the recent weakening, the National Bank of Ukraine noted on 17 August that the hryvnia’s fundamentals remain strong. The Bank remains committed to the flexible exchange rate regime, intervening only to smooth significant exchange rate fluctuations that occur as a result of contextual rather than macroeconomic factors.