The National Bank is preparing to “unpeg” the dollar. When could this happen, and what would it depend on?

The NBU should finalise a strategy to ease currency restrictions and move to a more flexible exchange rate in two months. The NBU made this commitment as part of the agreements reached with the International Monetary Fund on a new USD 15.6 billion loan programme.

The complete abandonment of the exchange rate fixation is another IMF requirement that Ukraine will fulfil at the second stage of cooperation with the Fund when the active phase of the war is over.

Ukraine has had a fixed official dollar exchange rate for 14 months, since 24 February 2022. This decision helped the regulator maintain price stability and calm citizens’ panic at the beginning of Russia’s war of aggression against Ukraine. However, it came at a price. The NBU has spent more than USD 30 billion from Ukraine’s foreign exchange reserves to maintain exchange rate stability, and the size of this “price tag” is growing every day.

When may the hryvnia return to “free float”?

“We do not think the transition to flexible exchange rate formation will occur before the end of 2023. Removing currency restrictions will be possible (and necessary to attract private capital for reconstruction) after the war.

The IMF itself prescribes a gradual return to a floating exchange rate for the second phase of the programme (from mid-2024) and only “when circumstances allow”,” says Maria Repko, Deputy Director of the CES.

Source: Ekonomichna Pravda.