Ukrainians continued to buy currency

Despite the stability of the hryvnia exchange rate last year, the population continued to actively buy foreign currency - net demand amounted to $13.5 billion. This year, demand will decrease due to a fall in household incomes, the holding of the Euro 2012 championship and the possible strengthening of the purchasing power of the hryvnia. However, to a greater extent, further interest in the currency will depend on the devaluation expectations of the population on the eve of the parliamentary elections, experts say.

The stability of the hryvnia exchange rate, which has remained virtually unchanged since April 2009, has not increased public confidence in the national currency. Yesterday, the National Bank calculated that over the past year, Ukrainians bought $13.45 billion more foreign currency from banks than they sold ($31.69 billion versus the offer of $18.25 billion). This is 38.2% higher than the previous year's purchase ($9.73 billion). The peak month was August, when the net purchase of currency by the population amounted to $2.09 billion, and the least interest in currency was in December - $740 million. The excess of demand for currency over supply forced the central bank to spend international reserves - from its maximum in July ($38.21 billion) by the end of the year they decreased by $6.42 billion (to $31.79 billion). Overall, reserves fell by $2.79 billion in 2011.

The continued interest of Ukrainians in the currency was explained by several reasons - the need to save money and repay loans. “Inflationary and devaluation expectations of the population remained high due to doubts about the reliability of the data and suspicions of artificial support of the hryvnia exchange rate by the National Bank given a fairly high growth rate of household income. In addition, the demand for foreign currency to repay mortgage loans remains huge,” explains the head of the macroeconomic department research of Ukrsotsbank Tanteli Ratuvuheri.

In addition, pessimistic sentiments are fueled by fears of a worsening crisis. “There are many articles in the media that Ukraine needs a devaluation of the national currency, it is even supposedly inevitable, and in the shortest possible time. As justification, they cite arguments in the form of a negative balance of foreign trade, the absence of new tranches of IMF credit and the weakening of major world currencies,” says Deputy Chairman of the Board of the Kontrakt Bank Pavel Krapivin. “In addition, people draw parallels: the second wave of the crisis is a repetition of the autumn of 2008 - a sharp collapse of the hryvnia.” The National Bank also notes negative sentiment in society: according to its report, in the fourth quarter, 32.1% of the enterprises it surveyed expected the hryvnia to depreciate to 8.24 UAH/$, and 13.9% of legal entities expected it to depreciate to 9.25 UAH/$ or more.

In January, the volume of foreign currency purchases practically did not decrease. “Although business activity has decreased, supply and demand were weak. But the population still continues to actively buy currency rather than sell,” says Anton Boldyrev, director of the treasury and financial institutions department at Credit Agricole Bank. Market participants note that foreign exchange reserves could reach a critical point by the middle of this year if the influx of funds from foreign economic transactions does not increase. According to Tanteli Ratuvuheri, the necessary critical foreign exchange supply for the country will be provided by the holding of the Euro 2012 Championship.

At the same time, there will be no sharp decline in demand for currency during the year. This is possible only if the growth rate of household incomes decreases and the real purchasing power of the hryvnia strengthens. “In 2012, one can hardly expect a change in the situation due to the continued rapid growth of household incomes, the inevitable explosion of populism and the weak success of financial reform in the country,” says Mr. Ratuvuheri. Particular interest in the currency may arise in the second half of the year. “A surge in demand for currency should be expected, as usual, in the fall. In September-October last year, the population was nervous, withdrew hryvnia from deposits and converted it into foreign currency. The same situation may repeat on the eve of the parliamentary elections,” predicts Anton Boldyrev.

Elena Gubar

Dynamics of currency purchases and sales by the population in 2011, $ billion

MonthVolume purchased
currency populationVolume sold
currency population

January	2,146	1,283
February	2,612	1,308
March	2.656	1.552
April	2.35	1,588
May	2.445	1,549
June	2,901	1,689
July	2.923	2,058
August	3,033	2,209
September	3,593	1.5
October	2,451	1,042
november	2,463	1,093
December	2.115	1.375

Source: National Bank

The hryvnia did not inspire confidence