REUTERS
The main risks are currently associated with a reform slowdown and uncertainty about the IMF program.
Experts with the ICU Group predict the strengthening of the hryvnia exchange rate in the first half of the year to UAH 27 to the dollar and the range of UAH 27.5-28 per dollar by year-end.
"Provided that the NBU monetary policy remains unchanged, seasonality and favorable trading conditions may cause the hryvnia to strengthen in the first half of 2021 even more than we forecast (UAH 27 to the dollar). We expect that the hryvnia exchange rate will close the year in a range around the current level (UAH 27.5-28 per dollar)," the report says.
Experts note that high real rates, rapid economic recovery, and favorable external conditions support the hryvnia exchange rate. Ukraine's external balance sheets are being positively influenced by favorable terms of trade and limited tourist flows, as well as the recovery of portfolio investment inflows. This is helping restore the NBU's international reserves, which reached $29 billion by the end of 2020, the eight-year high.
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"These risks may worsen sentiment towards Ukraine and cause devaluation pressure in the medium term. In addition, the deterioration of inflation expectations may first lead to a delay in monetary response, and then, accordingly, to an aggressive rise in the key rate in the medium term, which will also affect bond profitability," reads the review.
Background
The National Bank of Ukraine on Wednesday, March 3, set the official exchange rate of the hryvnia to the U.S. dollar at UAH 27.93, that is, the national currency beefed up by 7 kopiykas.
UNIAN memo
ICU is an independent financial group providing brokerage, asset management, and private equity services. The Group specializes in the markets of Central and Eastern Europe.
It manages over $500 million worth of assets.