The NBU Switches to Controlled Fluctuation FX Regime

UKRAINE - In Brief 02 Oct 2023 by Dmytro Boyarchuk

---

The NBU has announced a controlled fluctuation FX regime beginning October 3rd, abandoning the fixed exchange rate regime that had been in place since the full-fledged Russian invasion in February 2022. While the move was anticipated, the timing was unpredictable, catching observers by surprise. The official exchange rate had been fixed at 36.57 hryvnia per dollar since July 2022. This rate was employed for legal entities conducting import and export operations, whereas private individuals could acquire US dollars at 37.45 for savings purposes, provided the funds were deposited for 3-4 months, or use a rate close to the official one for cashless operations, albeit with numerous restrictions. A volatile retail exchange rate also existed, serving as a more accurate reflection of the hryvnia’s real market value. In 2022, this retail rate experienced significant fluctuations, showing a spread exceeding 20% over the official rate during some months. However, for the past six months, it has generally hovered between 37 and 38, even surpassing the ‘privileged’ rate of 37.45 for savings deposits through May-July 2023. The implementation of this switch to the controlled fluctuation regime will primarily aim to adjust the official exchange rate, which predominantly pertains to legal entities. The NBU asserts that there will be no significant volatility in the initial stage of the new regime, and there isn't an immediate objective to address macro-economic imbalances. The NBU also plans to maintain the appeal of hryvnia deposits, even amidst increased FX volatility. The indications from the NBU give us a glimpse into the likely developments in the coming months. Initially, change...