Ukraine's Forex Market Finds New Equilibrium Amid High Demand

A new equilibrium is emerging in Ukraine's foreign exchange market, but demand for foreign currency continues to outstrip supply. This imbalance could lead to a sharp devaluation of the hryvnia, but the National Bank's interventions and international reserves are mitigating this risk.

Taras Lesovyi, director of the Department of Financial Markets and Investment Activities at Globus Bank, says that demand on the interbank market may exceed supply by 15-20%, primarily due to Ukraine's significant structural demand for imports. However, high yields on hryvnia-denominated instruments are creating an additional barrier to a massive outflow of funds into foreign currency.

The National Bank has been selling foreign currency to the market, with $4.82 billion in interventions in August alone. This is helping to maintain the 'managed flexibility' regime, which allows for exchange rate fluctuations while smoothing out sharp and undesirable movements.

Lesovyi forecasts that the base range for the dollar on the interbank market will be 44.4-44.8 UAH per dollar, with a wider range of 51.5-52.5 UAH per euro. The cash market is expected to see similar ranges.