Ukrainian expert says political factors behind weaker hryvnia

Economist Andriy Novak has explained why the hryvnia, Ukraine's national currency, has recently become weaker after its rate changed against the U.S. dollar by 20 kopiykas on May 30 and forex booths in Kyiv sold the dollar for UAH 27 on Thursday evening.

Read alsoNBU weakens official forex rate to UAH 26.68 to dollar for May 30

"The hryvnia rate against the dollar – our currency has weakened slightly – has been affected by reports related to the fact that the International Monetary Fund [IMF] has postponed its disbursement to Ukraine. This is due to political reasons, that is the holding of snap parliamentary elections. The IMF needs to understand who will be in the country's next government. This refers to major signatories on the part of Ukraine, namely the Prime Minister and Finance Minister," he told the Ukrainian news outlet Glavred on May 30.

On the other hand, there are no specific financial and economic reasons for the hryvnia to become weaker, the expert assured.

"We have got enough gold and currency reserves, totaling $19.3 billion. Given the financial cushion of forex reserves, Ukraine can easily survive during the next three to five months, before the next IMF disbursement arrives. Therefore, if the hryvnia devalues further, this is a political devaluation, not an economic one," the expert said.

According to Novak, the fact that Ukraine has plunged into the parliamentary elections soon after the presidential campaign means a tough confrontation between the new team in power and the old one.

"It's clear that representatives of the old team, who are still in power as heads of the government and the National Bank [NBU], are willing to undermine the trust and high rating of the new president [Volodymyr Zelensky] and his team. [According to them,] to this end, the socio-economic situation in the country should be destabilized, including through such a lever as the weakening of the national currency. And I don't rule out that such a situation is a consequence of the political actions by the former government to lower the newly elected president's rating," he said.

According to the expert, the period which could be used to forecast the hryvnia rate is not yet over.

"This situation has been observed for only a few days, and this is not a trend. We need to wait until the weekend and see what happens next. If the decline continues daily, it will mean that the political processes have started. And everything will depend on the actions of the new president and his teams. I believe they must respond to such things as the [forex] rate," he added.

When there are imbalances in the forex market, one needs to do everything to avoid tangible jumps, according to the expert.

"If the devaluation trend lasts for the next three or five days, they shall point out to the heads of the National Bank and the Cabinet that the rate and its stabilization is now the key issue. So, they need to do their utmost to prop it up," Novak summed up.