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21 Jul, 2022 13:05

Ukraine devalues national currency

The hryvnia has been weakened against the US dollar by 25%
Ukraine devalues national currency

The National Bank of Ukraine has reduced the official hryvnia exchange rate against the US dollar by 25%, the regulator announced in a statement on its website on Thursday.

This step will improve competitiveness of Ukrainian producers, converge exchange rate conditions for different groups of businesses and households, and support the resilience of the economy during the war,” the NBU said in the statement.

The regulator added that “the reasoning behind the decision was the shift in the fundamental parameters” of Ukraine’s economy and the strengthening of the US dollar against other currencies.

The NBU set the new hryvnia rate at 36.5686 to 1 dollar, while previously, at the start of Russia’s military operation in late February, the rate stood at 29.25 per dollar.

NBU Governor Kirill Shevchenko said the new exchange rate “will become the anchor for the economy and make it more resilient at the times of uncertainty,” while “keeping the exchange rate fixed will enable the NBU to maintain control over inflation dynamics and support uninterrupted functioning of the financial system.

According to the NBU forecast, inflation in Ukraine could surpass 30% by December.

The regulator also expects the change to boost inflows of foreign currency by exporters and lessen the “speculative behavior of market participants.” Ukraine has been struggling to keep the hryvnia afloat over the past several months as the country’s foreign income has been dwindling due to the standoff with Russia. This has affected Ukraine’s international reserves, and the NBU’s move is, among other things, expected to lessen the country’s need to dip in to those assets.

Ukraine’s international reserves are sufficient to ensure the exchange rate stability, taking into account the prospect of receiving international financial aid, a gradual setting up of export logistics, an increase in sales by exporters, and the expected decline in demand for foreign currencies after the exchange rate adjustment,” the NBU said.

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