Hryvnia weakens 1.6% YTD to UAH 28.5/USD in mid-January

The hryvnia, Ukraine’s national currency, has weakened
by 1.6% over the first two weeks of January to UAH 28.5/USD as of Jan. 12, the
National Bank of Ukraine (NBU) said in its statement that day. Seasonal factors
caused the recent depreciation, said NBU Deputy Head Oleh Churiy, citing
boosted demand for foreign currency by importers and less supply among
agricultural exporters, which is traditionally observed at the year start. In
response, the NBU has injected USD 53.5 mln into the banking system this month
in order to prevent excessive spikes in the exchange rate.

In 2017, the hryvnia fell 3.1% to UAH 28.1/USD by the
year end, marking its most stable performance over the last four years.

Evgeniya Akhtyrko: While the
seasonal changes in currency supply and demand by exporters and importers are
essential, the hryvnia also fell owing to the surge in public spending in
December, in line with our expectations. 
Treasury residuals dropped in December by UAH 49 bln to UAH 5.1 bln as of Jan.
1, meaning massive hryvnia disbursements into the economy on the top of regular
budget spending, which we believe to be the main source for the current hryvnia
volatility that we are observing.

We expect the hryvnia will stay in the current
range of UAH 28.5/USD in the upcoming weeks with likely potential strengthening
to UAH 27.5-28.0/USD in February-March. By the end of 2018, we expect the hryvnia
will touch UAH 29/USD on the back of further C/A deficit widening.