Ukraine’s central bank allowed limited fluctuation of its national currency, the hryvnia, from Tuesday for the first time since the start of Russia’s invasion in 2022 in order to strengthen the country’s economy.
As of Tuesday, the National Bank is implementing a controlled flexibility regime for the hryvnia exchange rate, in order to strengthen the resilience of the Ukrainian economy, the monetary institution announced in a press release published Monday evening.
This decision was taken due to the relative stabilization of the macroeconomic situation, the bank specified, citing in particular a significant drop in inflation (8.6% in August over one year compared to 26.6% for the whole of 2022), the accumulation of monetary reserves which reached $40.4 billion in August, a record, and the stability of the banking system despite the war.
International aid played a key role in this improvement observed over the past six months, Olena Bilan, chief economist of the Ukrainian investment company Dragon Capital, said on Facebook on Tuesday.
The country, under Western perfusion, has received around 4 billion dollars in international financial aid per month since the start of the invasion, she recalled.
From now on, the official exchange rate will no longer be set unilaterally by the central bank as has been the case since February 2022 but will be established based on operations on the interbank exchange market, revealed the institution which will nevertheless continue to considerably limit fluctuations in the hryvnia.
Expected for several months, this decision is part of the central bank’s policy of gradual monetary liberalization aimed at supporting the national economy.
Since July, the bank has twice lowered its key rate to 22% then 20% after raising it from 10% to 25% in June 2022 to try to stem inflation and protect the currency.
In the first days of the invasion, the monetary institution first fixed the exchange rate of the national currency before devaluing it by 25% against the dollar in July 2022. But it has kept its official rate almost unchanged since. .
The Ukrainian currency was trading on Tuesday at around 36 hryvnias per dollar and 38 hryvnias per euro on the exchange market, a rate very close to the official rate, according to specialist sites.
The Russian invasion, which caused enormous destruction, led to a collapse in national economic activity of 29.1% last year.
The International Monetary Fund (IMF) has revised its economic forecasts for Ukraine upwards and expects GDP to increase by 1-3% this year and inflation to reach 15.5%. The central bank, for its part, forecasts GDP growth of 2.9% and inflation of 10.6% this year.