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What is happening with the dollar rate now? Should we expect an increase or the opposite tendency?
First of all, I want to say that the growth of the dollar rate in our country happened gradually, there were no extraordinary jumps. The fact that the National Bank of Ukraine (NBU) still decided to bring the official exchange rate closer to the commercial market level is partially justified. We need, at least, that exporters receive a larger payout in hryvnias for domestic products sold in the West. It was impossible to work in conditions of large differences in exchange rates: official (NBU) and commercial (black market). This caused speculative tendencies and a certain inconsistency in determining the price level.
Apart from the war, there were no real reasons to devalue the hryvnia. What’s more, we started selling grain. If our exports were relaunched, then it’s logical that foreign exchange gains will also return to us. We can say that in recent months, on the contrary, stabilizers have appeared in our country, financial assistance from the West has not decreased. Therefore, in my opinion, the exchange rate should return to the level of 38-38.5 hryvnias per dollar.
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Significant pressure on the money market is observed due to the fact that we have a huge number of people who have left Ukraine. It’s not for nothing that the National Bank has limited the amount of currency that Ukrainian citizens can withdraw from Ukrainian cards abroad. I personally know some citizens who fled the war and took hryvnias abroad in suitcases, because they could not be exchanged in Ukraine. However, even today there are cases when Ukrainians return hryvnias to Ukraine in order to put them on a hryvnia card and use it abroad. All these processes began to shake the market little by little.
It must be said that the current movement of the population here is crazy. The need for money is simply incredible, in any currency. Therefore, the fact that the National Bank is forced today, as they say, to increase the emission in order to satisfy the demand of the population, is a significant pressure.
To talk about the stabilization of the hryvnia, we must also talk about a significant reduction in social expenditures. Let’s see if the government and the NBU will succeed in this. If the government will significantly reduce expenditures on the management apparatus, throwing money into the social sphere, then the situation with the dollar will more or less stabilize. It is also necessary to review the policy regarding the payment of wages to people who are currently not in Ukraine.
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You can’t throw so much «extra» money into the market, especially in wartime. It is wrong to produce payments at the expense of the hryvnia issue, at the expense of foreign currency from abroad and massively throw this hryvnia onto the market. It is logical that people who will receive more hryvnias will then come to the market for cash dollars.
Closer to autumn, our exports will grow in any case. The volume of grain exports has already increased: corn, barley, rye, soybeans, and the demand for rapeseed is growing significantly on the world market. This contributes to currency stabilization. I hope for the government’s actions to reduce certain payments. The flow of proceeds will anyway impact the exchange rate.
As I got this correct, we should not buy dollars now?
Some of those who had bags of hryvnias that could be exchanged for foreign currency are now abroad. And they sit there with both hryvnias and dollars. At the same time, those who remained in Ukraine do not have the opportunity to buy back such a large amount of dollar stock. Of course, if someone wants to buy $100 or $200, that’s fine, but there are very few people who want to buy $100,000. What’s more, soon people will have other things to consider, except the dollar.
From September, we will have a problem with money as such to feed ourselves. Heating will be a very serious problem. There is also a problem with prices: they will rise even more in the fall. Gas will not become more expensive, but it will still be difficult to pay for it. That is, all factors will put pressure on people so that they will barely think of the currency.
In the fall, the question will arise as to how to save at least some hryvnia funds and pay for utility services, fuel, firewood, as well as the question of the cost of gasoline and diesel fuel. As for the latter, I am worried that there will be a new wave of its price increase. In the fall, there will be plowing, winter crops will be sown, and there will be a problem with fuel. But this is a typical trend.
How did the difference between the official and commercial exchange rate of the dollar affect the gold and foreign exchange reserves?
Gold and currency reserves have significantly decreased, no doubt. Not in half, but still. There are many factors here, and if we are talking about the market rate or the black market rate, here is how it works: everyone looks at the exchange rate on the market, and then some sell anything, even what they once brought, but did it with private pegged to the dollar at the market price, not at the NBU exchange rate.
For example, if an importing company brings goods, it calculates taxes and all payments at the rate of the NBU. If we are talking about the spontaneous market, then they calculate only according to the market rate.
This not only impoverished the NBU reserves, but also every Ukrainian, because the black market worked with «black» currency. And this big discrepancy in the exchange rate made it possible for some to earn and others to spend.
Even if the exporter, relatively speaking, sold corn abroad, he calculated it at the official rate, while the one who imported other products to Ukraine, calculated it at the «black» rate. The one who sold corn, received a smaller profit in hryvnias, and the one who sold imported products according to the schemes, did so at the «black» exchange rate. These «scissors» hit the balance of foreign trade, as well as gold and currency reserve of the NBU.
If we take into account the war factor, the export-import imbalance, then in certain months, the import could have been five times greater than the export. This is a very serious imbalance. I don’t even know how the NBU and the government managed to stay on the course we are on now.
In the conditions of the war, we observe a 30% drop in GDP, a decrease in the population. That is, consumer demand has decreased, while it rose abroad. If all these indicators are included in the model, the exchange rate in our country should be set on the level of 100-120 hryvnias per dollar. Still, we persevered in this financial war, because another goal of Putin was to collapse the entire financial system. Therefore, these fluctuations must be experienced. If exports go – then, I hope, it will stabilize.
What do you advise for those who now have «free» hryvnias – open hryvnia deposits, or buy military bonds?
If we talk about military bonds, there is a guarantee that these funds will be returned with interest even at the level of inflation that will be this year. Although inflation will be 30-35%, half of the money can be saved by investing in bonds.
Some banks are also starting to offer deposits, even within 15% per annum. So the funds can be put on deposit, and they will be returned in any case. There is a deposit guarantee fund, so you don’t have to worry about them.
It’s not worth buying currency now, only big panickers do it. If the dollar fell to at least 39 hryvnias, then it might be appropriate for someone to buy a certain amount of dollars to somehow insure themselves in the winter.
However, for a person who receives 10 thousand hryvnias, it does not make sense to buy dollars and save on food today. You have to think ahead. For those who have the amount of hryvnias equivalent to $ 10,000 in cash, I would advise to buy a solar battery and install a new heating system, because from September, in the next five to ten years, private means of heating will be of highest relevance.
Buying dollars and sitting in a cold house with nothing to heat is simply a wild decision. It is easier to buy an inexpensive solar battery or put a fireplace on firewood, they are now on sale.
No one explains this to people, but why is everyone being forcibly evacuated from the Donetsk region? It’s precisely due to the impossibility of heating the premises in winter. It is not a fact that we will have heat everywhere, gas storages are only 62% full so far. Therefore, I repeat, in autumn we will not think about the dollar, but about heating, fuel and food.
What will happen to the prices of products?
If we talk about products that are cheaper in the summer, the vegetable group, then there were no changes in prices. In August, we got used to Kherson tomatoes, but now they are gone. Prices did not decrease during the tomato picking season and will not decrease in the fall either. The price of carrots and potatoes may decrease, but not for other vegetables.
As for meat prices, they were not low before, but now they are likely to go up, just like dairy products. What’s more, high-quality domestic and imported cheeses have already risen in price significantly, and in the fall, they will become even more expensive, so not everyone will be able to afford buying them.
By the way, this year there was good buckwheat crops harvest. I don’t know how much it will be collected, but buckwheat should fall in price. Unfortunately, this is all related to the cost of gasoline and diesel fuel. If it grows, it will affect the cost of all food products. We used to import a lot of personal hygiene items from Russia and Belarus, so they are already becoming more expensive. And prices for toothpaste and creams will rise even more.
It’s going to be a little out of reach until maybe the salaries go up in a year or two. Salaries will not increase in winter, that’s for sure. Currently, they have decreased in nominal terms, and even more so in real terms. So, unfortunately, it’s time to tighten the belts. In general, I believe that the government should have announced this in April: «Everyone who can provide himself with some energy resources must do so immediately!» This is the first. Secondly, to exempt from customs duty not cars, but any energy equipment, not only for business, but also for the population. Everything that can save, produce and somehow accumulate energy.
All this should have been exempted from taxation, and now we would have a somewhat different situation, and circumstances would not put so much pressure on the dollar. People expect that their homes will be +20°C in winter. Unfortunately, it won’t be so. They will be grateful even for +15-16°C. I think you should take a pencil, a notebook and think about how to plan winter expenses, not how to hide two or three hundred dollars.
Roman Tyshchenko-Lamanskyi, translated by Vitalii Holich
Photo from open sources
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