The NBU raised the Dollar exchange rate by 1 Hryvnia in a month and risks triggering inflation

On Friday, May 31, the non-cash dollar exchange rate on the interbank market reached 40.67 UAH/USD, then retreated to 40.47 UAH/USD, and ended trading on the Bloomberg platform at 40.55 UAH/USD. By the end of the day, the National Bank of Ukraine (NBU) raised the official exchange rate from 40.5001 UAH/USD to 40.5373 UAH/USD (effective June 3).

Over the month, the official dollar rate increased by almost 1 UAH (99 kopecks): on May 1, it was 39.5151 UAH/USD, and on May 31, it was already 40.5001 UAH/USD. The non-cash dollar rate on Bloomberg also rose by nearly 1 UAH in May, from 39.57 UAH/USD to 40.55 UAH/USD. This occurred amid a noticeable increase in demand for dollars.

The day before, trading volume on Bloomberg was $178.7 million, for the past week it was $1.3 billion, and for the month it was $4.2 billion. Most of this demand was covered by the National Bank from its reserves. Preliminary estimates indicate that in May, the NBU sold more than $3 billion on the interbank market, compared to only $2.3 million in April. Therefore, by the end of the month, we might see a further reduction in the NBU’s foreign exchange reserves, which fell by 3.1% in April to $42.4 billion.

Several large currency purchases for Ukraine’s military needs were made on the non-cash market in May, but there was also increasing demand from businesses for current import needs and due to the lifting of some currency restrictions. These restrictions, initially imposed by NBU Resolution No. 18 on February 24, 2022, prevented companies from freely repaying old debts to foreign partners and financial institutions.

In the last week, banks also noted increased demand for dollars from the population. Ukrainians became more active in buying cash dollars at bank branches as the exchange rate rose, and in non-cash purchases on cards. Simultaneously, there was an increase in the conversion of hryvnia deposits into foreign currency as their terms expired.

Banks believe that the NBU may try to stabilize the hryvnia at current levels in June, citing the average annual exchange rate of 40.7 UAH/USD, which is included in Ukraine’s state budget for 2024.

“40.7 UAH/USD is the average rate for the year, not the limit, and theoretically, the interbank rate could even exceed 41 UAH/USD, but it should still revert. We observe devaluation in spurts: the rate remains stable for a long time, then drops significantly in just a few weeks. This happens under the control of the National Bank, indicating its approval. It’s said that this is done to increase tax revenues from exporters, improve the conversion of international aid, and under pressure from the IMF, which requires our government not only to wait for external donor funds but also to actively utilize internal sources, including through devaluation. However, this must be done in a balanced way to avoid high inflation, as a rising dollar rate leads to higher prices, for which the NBU is responsible. Combined with rising electricity tariffs, this could significantly worsen inflation. In June, the National Bank is likely to try to slow the dollar’s appreciation, otherwise, it will be difficult to control inflation later,” analyzed the chairman of one bank.

On the black market, the dollar’s selling rate today rose from 41.0 UAH/USD to 41.04 UAH/USD, and the buying rate increased from 40.3 to 40.5 UAH/USD. Since the beginning of May, the currency has increased by 1.2 UAH, as on May 1, it could still be bought for 39.8 UAH/USD.

In bank branches, the average cash dollar selling price at the beginning of May was 39.90 UAH/USD, with a maximum of 40.1 UAH/USD. Today, the average rate is 41.11 UAH/USD, with a maximum of 41.40 UAH/USD. Currency purchases ranged from 39.40 to 41 UAH/USD.

The two largest state banks, PrivatBank and Oschadbank, set their buying/selling rates at 40.50-41.10 UAH/USD and 40.50-41.15 UAH/USD, respectively. The maximum card sale rate at banks this Friday reached 41.55 UAH/USD at Akkordbank, while the minimum was 40.85 UAH/USD at Ukrgazbank. The buying range was 39.90-40.95 UAH/USD.