Ukraine's central bank abandons fixed exchange rate from 3 October
The National Bank of Ukraine (NBU), which has been maintaining the official hryvnia exchange rate of UAH 36.5686 to the dollar since the end of July 2022, will switch to a regime of managed exchange rate flexibility from 3 October.
Source: message on the regulator's website
Quote from NBU: "As per the new regime, the official exchange rate will be shaped by the exchange rate used for transactions in the interbank FX market instead of being set by the NBU under Resolution 18, as has been the case since 24 February 2022."
The NBU announced that thanks to the elimination of the structural deficit, the exchange rate on the interbank market will be able to rise and fall in response to changes in the balance of supply and demand in the foreign exchange market.
"In addition, the NBU will significantly limit exchange-rate fluctuations, preventing both a significant weakening and a significant strengthening of the hryvnia," the regulator said.
At the same time, the exchange rate on the cash foreign exchange market, where individuals can buy and sell foreign currency, will be set according to the same rules as before, continuing to be determined by supply and demand. It has been operating in this mode for almost a year and a half, during which the hryvnia has weakened and strengthened significantly.
The same rules as before will apply to banks' card-based transactions.
"The transition to the regime of managed flexibility of the exchange rate became feasible because the macroeconomic preconditions are met and fundamental preparatory work has been done. This enables us to ensure a controlled transition and minimise risks to the financial market, the economy, and households."
Managed exchange rate flexibility will become the new way for the economy to adjust to "changes in the domestic and external environment, as well as an important prerequisite for a return to inflation targeting going forward," the NBU said.
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