How the dollar exchange rate in the budget affects the cash currency — an expert's explanation
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Economics
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How the dollar exchange rate in the budget affects the cash currency — an expert's explanation

Dollar
Source:  Channel 24

It's no secret that the expected exchange rate for next year was set at 40.7 hryvnias per dollar. It is worth paying attention to the fact that it was still reduced compared to the indicators that became known earlier. According to banker Taras Lisovyi, this may indeed affect the cash exchange rate.

What is important to understand about the dollar exchange rate in the budget

As you know, the currency forecast is based on many macroeconomic factors.

According to Taras Lisovyi, this is primarily GDP growth, reduction of the budget deficit due to economic development, foreign exchange earnings from macrofinance, export earnings, etc.

It should also be remembered that the budgeted exchange rate is a benchmark when several factors coincide: economic, political, and, at present, military.

The budgeted exchange rate is also often considered a Weighted arithmetic mean, which will not always coincide with the actual exchange rate," the banker explains.

Dollar exchange rate on the cash market in 2023
Photo: screenshot

Should you prepare for changes in the cash rate?

Tarasa Lesovy does not believe that Ukrainians will feel the real impact of the expected average annual exchange rate on the cash market.

Rather, it will be a psychological impact.

According to the expert, the demand for foreign currency may increase situationally.

However, for 3 weeks now, the foreign exchange market has been living in conditions of supply dominance over demand, which immediately resulted in a decline in exchange rates. That is, once again, the "budget" rate is a benchmark, and the actual rate will depend on a number of factors," the banker explained.

These factors are:

  • the policy of the National Bank of Ukraine on the effective liberalization of the foreign exchange market,

  • economic indicators of the country,

  • the amount of macro-financial assistance

  • the situation at the Russo-Ukrainefrontline and the possible damage caused by enemy attacks, which may affect the ability of the business to operate.

What is important to understand is that today the cash exchange rate is formed based on the interbank market, on the supply and demand ratio in the non-cash market.

Moreover, the regime of managed flexibility is currently in place, which ensures free exchange rate formation on the interbank market.

As Taras Lesovy explains, while the National Bank "intervenes" in the market, increasing or decreasing the amount of currency interventions, in order to adjust the "distortions" between supply and demand.

However, there is also more and more "freedom" in the market, so the market expects more dynamic exchange rate fluctuations, both up and down, but without jumps and falls. Therefore, the ultimate goal is to return to a 'floating' exchange rate and 100 per cent liberalisation of the foreign exchange market," the expert concludes.

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