Ukraine’s Fixed Exchange Rate: Impacts, Motives, and Market Realities

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The National Bank of Ukraine began a transition from a floating to a fixed exchange rate on February 24, setting the hryvnia at 29.25 per dollar. By July 21, the regulator lowered the peg by a quarter, and today the dollar stands at 36.56 hryvnia. The bank described this policy as a move to anchor macroeconomic stability, arguing that a fixed rate can help curb inflation and improve the competitiveness of Ukrainian producers. It also noted that the new rate would attract more foreign exchange inflows and boost exporters’ dollar revenues.

Kyiv’s motive for shifting to a fixed regime appears linked to stabilizing the economy and taming inflation. Yet, a persistent balance-of-payments deficit means that a rigid rate can deplete international reserves over time. In April 2022, Ukraine posted a consolidated balance of payments deficit of 783 million dollars. International reserves shrank in successive months, with declines of 4.1% in April, 6.8% in May, and 9% in June. By July 1, reserves stood around 22.8 billion dollars, while sovereign debt at the state and state-guaranteed level surpassed 100 billion dollars. This assessment comes from the head of the analytical department at BKF Bank, Maxim Osadchiy.

Osadchiy warned that the drop in reserves raises the risk of a sovereign default. He noted that Ukraine has faced the need to negotiate postponements of foreign debt payments, and the squeeze on reserves has pushed up the cost of servicing foreign currency debt. To ease the load on reserves, the authorities chose to allow a sharp devaluation of the hryvnia, with the official rate now aligned closely with the market rate of around 37 hryvnia per dollar.

Another analyst, Mark Savichenko of Ivolga Capital, argued that the 25 percent weakening of the fixed rate primarily serves exporters. In the new environment, Ukrainian goods become more competitive on world markets, which should lift export earnings over time.

Assessing the true value of the hryvnia

Officials from the National Bank of Ukraine indicate that the bank can continue pursuing the path it has chosen, effectively maintaining what they view as the real exchange rate. However, sustaining the rate depends on ample foreign exchange reserves; a depletion would modestly weaken the hryvnia. The current conditions do not permit precise quantitative forecasts.

Market observers have reported a parallel black-market dynamic, with dollars trading around 38.5 to 40.1 hryvnia in informal channels, according to Ukrainian sources. On a recent weekday, the official rate hovered near 37 to 38 hryvnia per dollar on the unofficial market. Evgeny Mironyuk of BCS World of Investments explained that since February a degree of alignment has emerged between the official and unofficial rates, reflecting the currency’s journey toward equilibrium under external pressures.

In the view of the analysts, the hryvnia’s path is closely tied to reserve adequacy. If reserves hold steady, the authorities may maintain the current trajectory; if reserves erode further, depreciation could accelerate. Market dynamics suggest the currency could track a path that keeps the rate stable in the short term while facing periodic adjustments in response to external shocks and domestic demand conditions.

Implications for Ukrainian households and prices

A weaker hryvnia typically feeds through to higher inflation, particularly through the prices of imported goods. Inflation in the economy has already been elevated, and if the currency remains under pressure, price growth may accelerate further. Some analysts believe that fixing the rate helps limit the pace of depreciation and, in turn, inflationary pressures, while others caution that fixed regimes can postpone necessary adjustments and ultimately intensify the inflation impulse if reserves tighten.

There is a sense among experts that currency policy choices now influence real purchasing power. A fixed rate can shield consumers from the full force of sudden currency moves, yet it also risks drawing down reserves if foreign payments compress the central bank’s buffer. In this environment, the authorities are balancing the objective of price stability with the need to preserve external financing access and maintain competitiveness for Ukrainian products on global markets.

Some academics suggest that if the peg were to be dismantled, the hryvnia might experience sharper depreciation. Proponents of a gradual transition argue for a flexible regime to absorb external shocks while preserving macroeconomic credibility. Overall, analysts emphasize that currency policy remains a tool in a broader stabilization strategy that includes fiscal discipline, structural reforms, and continued resilience in external financing channels.

Experts from PRUE and other financial departments emphasize that the currency outlook hinges on maintaining credibility and ensuring inflation expectations remain anchored. They note that any move away from a fixed rate would depend on improving reserve adequacy, deepening financial market depth, and reinforcing the economy’s resilience against global price swings. The dialogue among policymakers continues as the country navigates the delicate balance between stabilization, growth, and long-term financial stability.

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