The NBU introduces a flexible exchange rate, but promises to curb currency fluctuations

Against the background of the stable dynamics of inflation reduction, the accumulation of a significant amount of reserves, the growth of rates on hryvnia deposits and OVDP, the National Bank of Ukraine decided to introduce a policy of managed flexibility of the exchange rate of currencies.

In contrast to the "floating" exchange rate that operated in Ukraine until February 24, 2022, in the current regime of exchange rate setting, the NBU will remain the main participant in the foreign exchange market and will carefully monitor the situation, compensating for the structural deficit of the currency and limiting both a significant weakening and a sharp strengthening of the hryvnia.

In the regime of managed flexibility, the official exchange rate will be determined by operations on the interbank foreign exchange market with the active participation of the NBU. At the same time, on the cash market, where citizens can buy and sell currency, the exchange rate will be determined according to the same rules as the last 1.5 years. This applies precisely to bank card rates.

We will remind you that for 1.5 years, bank card rates and the rate on the cash market have not been fixed, so it can both rise and fall. The National Bank will continue to try to minimize the difference between the cash and official rates.

The transition to the new course creation policy was made possible thanks to preparatory work in partnership with international experts, taking into account the best global experience, and against the background of such macroeconomic conditions as:

• became the dynamics of the decrease in inflation,
• the accumulation of a significant amount of international reserves,
• increasing the attractiveness of hryvnia deposits and OVDP as instruments of protection against inflationary risks.

All this will ensure a controlled transition and minimize risks for citizens, the economy and the financial market.

The new exchange rate regime will increase the stability of the economy and currency market of Ukraine, promote their adaptation to changes in external and internal conditions, reduce the risks of currency imbalances possible against the backdrop of a long-term fixed exchange rate and become a prerequisite for returning to inflation targeting in the future. The main task of the NBU will remain the preservation of exchange rate stability.

The NBU's decision should improve the indicators of the budget, which currently receives international aid and converts currency at a stable rate, as well as support exporters, who will receive more hryvnias from the sale of foreign exchange earnings. However, it is unlikely that the NBU will be able to keep the exchange rate stable, so it is worth expecting its jumps, which will have a negative impact on the economy during the war. Later, the NBU may return to a fixed exchange rate, especially in the event of a delay in aid from the United States.