Ukraine: Ukrainian hryvnia falls to record-low after Central Bank ends foreign exchange auctions
February 6, 2015
The Ukrainian hryvnia (UAH) has plunged in value against the U.S. dollar in recent days. On 5 February, the UAH reached an all-time low against the greenback, falling over 30% to end the day at 24.35 UAH per USD. The hryvnia had closed the previous day at 16.78 UAH per USD. In addition, this was 53.9% weaker than the level observed on the same day of the previous month.
The drastic plunge in the value of the hryvnia resulted from the Central Bank’s announcement that it would allow the hryvnia to float more freely. On 5 February, the National Bank of Ukraine (NBU) announced it would no longer hold currency auctions nor set the indicative exchange rate. The announcement comes amidst a deteriorating economic outlook for Ukraine. The military conflict between the government and pro-Russia rebels has had a devastating impact on the economy and the country’s finances. In addition, the UAH has been under pressure for months as the military conflict has eroded confidence and contributed to a vast departure of capital.
Looking forward, the hryvnia is likely to see increased volatility as a result of floating more freely, however remain at historically low levels. Alexander Valchyshen from Investment Capital Ukraine comments:
The FX market is unlikely to see a boost from expected FX financial inflows (IMF and some donors) which otherwise could encourage positive momentum to the distressed UAH. At this moment, macroeconomic conditions say the UAH will continue to be in distress in 2015-17.