NBU Chairman Favors Hryvnia Revaluation

The Chairman of the National Bank of Ukraine, Volodymyr Stelmakh spoke out in favor of hryvnia appreciation at a press conference yesterday, saying that he would opt out of his parliament seat to remain in his post as head of the NBU. Stelmakh said that he supported a 2% appreciation to 4.90 UAH/USD. This news comes in line with our expectation of hryvnia revaluation. Currently National Bank of Ukraine maintains the exchange rate at UAH/USD 5.05 with a tight band of 5.00-5.06 and intervenes whenever the market approaches the limits of the band. As the moderate current account deficit and growing inflows of FDI and portfolio investments are bringing an excess supply of foreign currencies to the local FX market, the NBU is being forced to intervene heavily in order to prevent hryvnia appreciation. In our view, the current FX policy is unsustainable as it contributes to the acceleration of inflation. We expect that the NBU will widen the band to UAH/USD 4.80–5.15 in the short-term, but will not allow sharp changes in the exchange rate like in 2005.