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Ukrsibbank Research: FX and interest rates: Hryvnia remains under pressure

January 31, 2020 Cbonds
The Hryvnia slipped against the US dollar to 24.88 by the end of Thursday. It seems aggressive NBU’s interventions in Dec and early Jan, resulting in a USD3.2bn FX drain (net purchase), have set in the market a bearish mood, which currently neglects any positive news, including FinMin’s double debut on debt markets, both of which turned out to be successful, and stable foreign participation in primary debt auctions. The last week’s NBU’s FX injections, totaling USD26.5mn (net), apparently have only reinforced expectations of further USD/UAH pair correction. This has stimulated exporters to retain export revenue sales and cover their current business expenses by recently disbursed VAT refunding. Importers also increased FX purchases, both due to upcoming on the first of the month settlements on external transactions and as a reaction to the recent developments in the exchange market.
Another factor, fueling hryvnia’s retreat are worldwide concerns over the spread of the new virus from China. Expectations signal that China's 1Q GDP could drop significantly, with a strong impact anticipated on a global level. Besides, if the virus keeps on spreading extensively, it might strengthen risk aversion in the markets. All told, it seems both current and financial account of Ukraine’s balance of international operations looks highly exposed to possible negative developments. The worries, however, might turn out short-lived, as it was seen following similar outbreaks of the viruses in the past. Hence, it is too early to make long-term conjectures on this matter.
Company — UkrSibbank
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    PJSC "UkrSibbank"
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