The National Bank named the reasons for the drop in the dollar exchange rate in 2023

Since the beginning of 2023, there has been an improvement in the situation on the currency market of Ukraine. However, exchange rate stability is largely ensured by strict currency restrictions. This is stated in the Inflation Report of the NBU for April 2023.

Photo: bank.gov.ua 0

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According to the regulator, the situation on the currency market was heterogeneous during the first quarter of 2023. At the beginning of the year, demand for currency remained high, primarily reflecting significant government spending at the end of 2022.

In the future, demand gradually weakened, in particular, thanks to the better situation in the energy sector. Also, the volume of net purchases of foreign currency by banks in their own position decreased significantly, primarily due to a decrease in the amount transferred to international payment systems, the survey says.

In addition, the volume of non-cash currency purchases by the population decreased significantly in the spring. The demand for foreign currency on the cash market also decreased, which showed a noticeable narrowing of the spread between the cash and official rates (from about 12% at the end of December 2022 to 3.6% at the end of March 2023).

In addition to the measures of the NBU, this was also facilitated by the seasonal increase in the supply of cash foreign currency by farmers who purchased seed, fertilizer and fuel for sowing.

“The narrowing of the spread eliminates market distortions and promotes an increase in currency receipts through official channels. The revaluation of the hryvnia cash rate also supports the improvement of exchange rate and inflation expectations,” the NBU noted.

According to the regulator, the supply of foreign currency on the non-cash market was largely formed by the agro-industrial complex enterprises and the seasonal factor — the onset of annual tax payment deadlines. However, the total supply of foreign currency decreased somewhat compared to the IV quarter of 2022.

Read also: By 2026, according to the base scenario of the Memorandum with the IMF, the dollar exchange rate will grow to UAH 53.5/$ — expert

The NBU continued to balance the foreign exchange market through interventions, the volumes of which have noticeably decreased since the beginning of the year (from more than $3 billion in January to $1.7 billion in March).

“At the same time, exchange rate stability is largely ensured by strict currency restrictions. The effectiveness of the latter weakens over time, and their restrictive influence on economic activity — on the contrary, strengthens. Therefore, the implementation of currency liberalization in the foreseeable future is becoming more and more relevant. “Significant amounts of international aid and the improvement of the situation on the foreign exchange market from the beginning of 2023 form the prerequisites for the gradual easing of administrative restrictions,” the report says.

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Source: Ministry of Finance

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