15 Oct 2024 19:13

Ukrainian financial market stable despite crisis - NBU governor

MOSCOW. Oct 15 (Interfax) - The crisis certainly affects the psychological state of everyone and, therefore, it affects the financial markets, economy and expectations, but the current situation on the financial market is stable, National Bank of Ukraine (NBU) Governor Andrei Pyshny said.

"We saw a similar impact in July this year, when the exchange rate volatility began to grow. The National Bank secures the market sustainability with interventions, so we perceived it with their amount, the growth of demand and tried to understand what is happening, what is affecting and fueling this nervousness on the market. The market later stabilized, including thanks to the National Bank's steps," he said in an interview with Ukrainian media.

"The current market situation is stable, the presence of the National Bank is effective, managed flexibility works as a tool," Pyshny said.

He also said that the hryvna exchange rate stopped being exposed to the crisis for a long time. "If earlier [at the beginning of the crisis] the reaction of the exchange rate was tangible, as of now, it has not been seen for quite a long time," Pyshny said.

He said that at the beginning of the crisis, the NBU lacked such a tool as managed flexibility of the exchange rate, but the cash rate reacted exactly in this way.

Pyshny said he was pleased with the results of the first year of functioning the managed rate flexibility, which replaced from October 3, 2023 the fixed exchange rate, which was introduced at the beginning of the crisis in February 2022, and does not see the need for any radical changes today.

"No drastic changes are foreseen. We see that this regime is working. This is owing to the fact that changes in the balance between supply and demand set the trend of the exchange rate, and macroeconomic imbalances are rectified. The market has adapted," he said.

Pyshny said that the NBU is constantly present on the market because the structural shortage of the foreign currency is still in place, as the crisis has deprived Ukraine of a third of its economy, the country has huge budgetary needs and significant needs for imports, while its exports are simultaneously limited.

"However, we see that the depth of the foreign exchange market has tripled, as the volume of transactions on the interbank market without the National Bank's participation is currently around $110 million," Pyshny said, citing the another positive outcome of the model change.

He said that the NBU also managed to get rid of such a problem as multiple rates, as the cash exchange rate deviates from the official exchange rate by only 0.3% some days, but this difference steadily does not exceed 1%, whereas this difference exceeded 7% with the fixed exchange rate some days.

Pyshny also said that versatile fluctuations on the market have also brought back a sense of currency risk, which means that individuals and businesses have started to take a more responsible approach to planning.

"Thanks to the transition to managed flexibility, the exchange rate began to perform the function of a shock absorber rather than a generator," he said.

Commenting on an around 13% drop of the official hryvna exchange rate seen for a year after the switchover to the new regime, Pyshny said that if one takes the exchange rate on the cash market, that is, in the segment of the market where individuals buy and sell foreign currency, it fell 9%.

"You have to agree, it is difficult to call it a rapid plunge of the hryvna into devaluation, which we were frightened by 'generalist' experts, who turned criticism on the NBU into a profession a long time ago," Pyshny said.

When asked about the likelihood of reinstating the fixed exchange rate, Pyshny said that such a possibility exists and the conditions under which the NBU will have to resort to this move are "not difficult to imagine."

"The factors that could cause this kind of situation are obvious. We experienced them in February 2022. We later managed to minimize the consequences in a certain way thanks to a package of anti-crisis measures, one of the tools of which was fixed exchange rate," Pyshny said.

He said that he does not know "whether the worst is ahead or we have already gone through it," but added that precious experience has now been gained.

Pyshny described the current situation as a "perfect storm." "But we have learned to maneuver in it. And thanks to this, we do not yet see any prerequisites for returning to fixed exchange rate," Pyshny said.

"We already have macrofinancial stability. The sustainability of the currency market is ensured, and the inflation decelerated from 27% to 5% in 2023. It was even below the target in some months of 2024. All of these things are important for greater confidence in the future," Pyshny added.

As reported, the NBU set the fixed official exchange rate of hryvna to the dollar at 29.2549 UAH/$1 from February 24, 2022 and devalued it by 25% to 36.5686 UAH/$1 from July 21, 2022. Currently, the official hryvna exchange rate is 41.1963 UAH/$1.