National Bank of Ukraine cuts forex interventions 18.1% last week, but hryvnia weakens

MOSCOW. Dec 16 (Interfax) - The National Bank of Ukraine (NBU) reduced dollar sales on the interbank market by $198.3 million, or 18.1% week-on-week to $895.3 million last week, Ukrainian media reported, citing the statistics published on the regulator's website.

In the first four days of last week, the average daily negative balance of currency purchases and sales by legal entities fell to $96 million from $100.2 million for the same period the week before, amounting to $384.1 million in total, the NBU said.

At the same time, the cash market's negative balance from Saturday to Thursday grew to $43.6 million from $30.9 million the week before last. Sales of non-cash forex were larger than its purchases for all of these days.

The official hryvnia-dollar exchange rate, which began last week at UAH 42.0567/$1, weakened to UAH 42.2812/$1 in the space of three days, but ended the week at the level of UAH 42.2721/$1.

The dollar exchange rate on the cash market followed the trajectory of the official exchange rate, gaining around 17 kopecks in total over the week. The buy rate was UAH 42.12/$1, and the sell rate was UAH 42.49/$1.

At the same time, as the euro strengthened against the dollar on the world market following the Federal Reserve's decision to cut the key rate by 25 basis points, the hryvnia weakened against the euro more considerably over the past week, standing at UAH 49.4678/EUR1 versus UAH 48.9961/EUR1 the week before.

"The FX shortage remained high last week, little changed vs the first week of December. The NBU slightly reduced interventions, which indicates a temporary reduction in imbalances in the interbank market," the ICU investment group said in a statement when commenting on the situation.

The NBU is concerned about the prospects of international financial support next year, it said.

According to experts from KYT Group, a major cash currency exchange market participant (Liberty Finance LLC), the hryvni was buoyed by several major factors in December. The most important one was that Ukraine's international reserves reached a new all-time high of $54.75 billion.

"The situation for now is that the hryvni should not face any abrupt fluctuations. However, in the future (as early as 2026), its exchange rate will come under pressure from a number of factors, which include possible difficulties with receiving external aid (or its reduction)," they said.

In the short-term, 1-2 weeks, the base corridor is UAH 42.15-42.50/$1, with likely fluctuations, the experts said. They expect the exchange rate to stay within UAH 42.25-UAH 42.95/$1 in the med-term, which is 2-3 months.

In the long-term, a realistic baseline scenario is UAH 43.4-UAH 44.90/$1 by mid-2026, they said.

As for the euro exchange rate, the KYT Group experts believe that if the Federal Reserve again cuts the key rate by 25 basis points in January, the euro will continue to strengthen more actively, and its exchange rate in Ukraine may reach UAH 50.20-UAH 53.20/EUR1.