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What Happens To the Dollar Rate

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Please,  read the ‘Novoe Vremya’ (‘New Times’) expert column, written  by CASE Ukraine`s CEO Dmytro Boyarchuk in regard of the reasons for the rapid growth of exchange rate.

If we look at the statistics of Ukraine`s balance of payments, we should admit there is nothing terrible there. During October and November, a deficit was getting lower than expected. Currency earnings came in. There was a favorable situation on the metals market. There was also a surge of income from selling agricultural products. I do not think that the situation has changed radically in December and January. At least, we did not fix any radical changes in external markets, which could have provoked a deterioration in the balance of payments.That is, there are no fundamental factors for dollar`s jump. So, we may conclude that today we observe a temporary surge.

What caused it? Firstly, the situation of  PrivatBank. By itself, the nationalization of the largest bank in the country is a major psychological factor. Secondly, the state budget experienced in December some very large expenses: this is a traditional practice of the Ministry of Finance, although we should do something with that. At the end of the year the budget accumulates some money, and the Ministry of Finance invests it in the economy, throwing it to the recipients` accounts. Thirdly, Ukraine performed additional capitalization of Privatbank and made pension payments in advance.

In my opinion, this additional Hryvnia throwing led to the rise of the dollar exchange rate. If some extra hundred billion Hryvnia appears in the economy, they ‘come out’ somewhere. For example, demand for imports will increase and a devaluation will increase.

Read the full article [in ukrainian]

January 12, 2017