OREANDA-NEWS  On 19 September was announced, that the National Bank of Ukraine increased the exchange rate fluctuation band around the official UAH/USD exchange rate from 8% to 10% (5% both ways) for 2009. The change was adopted as part of the Monetary Policy Fundamentals for 2009, debated on 15 September 2008.

The widening of the exchange rate band will mean that the UAH/USD exchange rate will be more affected by supply and demand on the market, rather than NBU’s interventions. In our opinion this will lead to further weakening of the hryvnia in 2009. Firstly, it would be driven by the lower supply of the US dollars, expected due to decreasing foreign investment. Secondly, higher domestic inflation compared to inflation in the US, will also put pressure on the hryvnia. At the same time a devaluation of the hryvnia will favour exports growth, thus reducing the trade balance deficit. Yet, we expect that the exchange rate will not exceed UAH/USD 5.1, due to the NBU’s regulation.