Ukraine Central Bank Looks to Hryvnia Rally to Tame Inflation
Ukraine’s central bank won’t stand in the way of the hryvnia’s rally as it’s helping keep a lid on the country’s double-digit inflation, central bank Deputy Governor Serhiy Nikolaychuk said.
With a 6.5% gain against the dollar this year, the currency is among the world’s best performers and beats all of its east European peers, most of which have lost ground. The hryvnia’s advance was supported by strong global demand for commodities that Ukraine exports, tighter monetary policy, financial assistance from the European Union and signs the country is making progress in talks with the International Monetary Fund over the disbursement of financial aid.
“We will let the hryvnia strengthen if it’s driven by market forces,” Nikolaychuk said during an interview in his office. “We will try to smooth out any extreme fluctuations, replenish our reserves at the same time.”
The bank has been using less funds for currency interventions since August. Its daily cap is now $5 million, compared to $20 million before. They are also less frequent: since the start of the year it intervened 53 times, down from 106 interventions in the same period in 2020.
“The situation of our international reserves doesn’t look bad in the long run and we don’t need to buy as much foreign currency as we did two, three or five years ago,” Nikolaychuk said.
A strengthening hryvnia is good news for foreign investors interested in buying Ukraine’s local-currency bonds. Nikolaychuk expects demand for the country’s domestic bonds to grow, especially that Ukraine is in the waiting room to be included in the JPMorgan Chase & Co. index that’s a benchmark for a lot of investors in emerging-market debt.
Ukraine’s central bank raised its benchmark interest rate to 8.5% from 6% this year in an attempt to combat inflation which accelerated beyond 10% in July.
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