The National Bank of Ukraine will introduce a regime of “managed flexibility” of the hryvnia exchange rate from October 3

The National Bank of Ukraine announced that from October 3 it will switch from a fixed hryvnia exchange rate to a regime of “managed flexibility” of the currency. Now the official rate will be determined by transactions on the interbank foreign exchange market. The hryvnia exchange rate in the cash foreign exchange and card markets will continue to be determined by supply and demand. At the same time, the bank will continue to significantly limit exchange rate fluctuations, preventing significant strengthening and weakening of the hryvnia.

“The transition to managed exchange rate flexibility is one of the steps in implementing the strategy of easing foreign exchange restrictions, moving to a more flexible exchange rate and returning to inflation targeting,” the press service said.

The regulator noted that the regime of fixing the hryvnia exchange rate, which was introduced after the outbreak of hostilities, is effective only in a limited perspective and over time leads to the accumulation of currency risks and increased micro- and macroeconomic imbalances.

The NBU said that the bank’s priority goal is exchange rate stability and bringing inflation to 5% in the long term. According to the regulator, inflation in Ukraine by the end of August was at 8.6%. In the future, it is planned to increase the exchange rate flexibility, the National Bank noted.

Before the start of the military conflict with Russia, Ukraine had a floating exchange rate. The hryvnia was allowed to fluctuate depending on the foreign exchange market. After the outbreak of hostilities, the National Bank of Ukraine changed its monetary policy model, introduced capital restrictions and a fixed exchange rate for foreign trade operations. Foreign exchange transactions with hryvnia and non-cash currency must be carried out within a one-percent corridor to a fixed rate.

Erdni Kagaltynov